Market Participants Recognise Guangzhou Tinci Materials Technology Co., Ltd.'s (SZSE:002709) Revenues Pushing Shares 46% Higher

Guangzhou Tinci Materials Technology Co., Ltd. (SZSE:002709) shareholders would be excited to see that the share price has had a great month, posting a 46% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 23% in the last twelve months.

Since its price has surged higher, you could be forgiven for thinking Guangzhou Tinci Materials Technology is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3x, considering almost half the companies in China's Chemicals industry have P/S ratios below 2.2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Guangzhou Tinci Materials Technology

How Guangzhou Tinci Materials Technology Has Been Performing

Guangzhou Tinci Materials Technology could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Guangzhou Tinci Materials Technology.

Is There Enough Revenue Growth Forecasted For Guangzhou Tinci Materials Technology?

In order to justify its P/S ratio, Guangzhou Tinci Materials Technology would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a frustrating 35% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 107% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Turning to the outlook, the next year should generate growth of 23% as estimated by the analysts watching the company. That's shaping up to be materially higher than the 21% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Guangzhou Tinci Materials Technology's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Guangzhou Tinci Materials Technology's P/S Mean For Investors?

Guangzhou Tinci Materials Technology's P/S is on the rise since its shares have risen strongly. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Guangzhou Tinci Materials Technology's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Guangzhou Tinci Materials Technology that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.