Fewer Investors Than Expected Jumping On Shandong Fengyuan Chemical Co., Ltd. (SZSE:002805)

There wouldn't be many who think Shandong Fengyuan Chemical Co., Ltd.'s (SZSE:002805) price-to-sales (or "P/S") ratio of 2x is worth a mention when the median P/S for the Chemicals industry in China is similar at about 2.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Shandong Fengyuan Chemical

What Does Shandong Fengyuan Chemical's P/S Mean For Shareholders?

For instance, Shandong Fengyuan Chemical's receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Shandong Fengyuan Chemical's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Shandong Fengyuan Chemical's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 22% decrease to the company's top line. Even so, admirably revenue has lifted 279% in aggregate from three years ago, notwithstanding the last 12 months. 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.

When compared to the industry's one-year growth forecast of 22%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that Shandong Fengyuan Chemical is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does Shandong Fengyuan Chemical's P/S Mean For Investors?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We didn't quite envision Shandong Fengyuan Chemical's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

Having said that, be aware Shandong Fengyuan Chemical is showing 3 warning signs in our investment analysis, and 2 of those are concerning.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.