Xi'an Global Printing Co., Ltd.'s (SZSE:002799) 29% Share Price Surge Not Quite Adding Up

Xi'an Global Printing Co., Ltd. (SZSE:002799) shares have continued their recent momentum with a 29% gain in the last month alone. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 6.4% over the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Xi'an Global Printing's P/S ratio of 2.4x, since the median price-to-sales (or "P/S") ratio for the Packaging industry in China is also close to 2.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Xi'an Global Printing

What Does Xi'an Global Printing's P/S Mean For Shareholders?

Recent times have been quite advantageous for Xi'an Global Printing as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Although there are no analyst estimates available for Xi'an Global Printing, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Xi'an Global Printing would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 95% last year. Still, revenue has fallen 49% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 15% shows it's an unpleasant look.

With this in mind, we find it worrying that Xi'an Global Printing's P/S exceeds that of its industry peers. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Xi'an Global Printing's P/S Mean For Investors?

Its shares have lifted substantially and now Xi'an Global Printing's P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

The fact that Xi'an Global Printing currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You always need to take note of risks, for example - Xi'an Global Printing has 1 warning sign we think 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.