Revenues Not Telling The Story For Guangzhou Jointas Chemical Co., Ltd. (SZSE:002909) After Shares Rise 26%

Guangzhou Jointas Chemical Co., Ltd. (SZSE:002909) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 37% in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think Guangzhou Jointas Chemical's price-to-sales (or "P/S") ratio of 1.6x is worth a mention when the median P/S in China's Chemicals industry is similar at about 1.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Guangzhou Jointas Chemical

How Has Guangzhou Jointas Chemical Performed Recently?

For instance, Guangzhou Jointas 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 you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

Is There Some Revenue Growth Forecasted For Guangzhou Jointas Chemical?

Guangzhou Jointas Chemical's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 14%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 19% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Guangzhou Jointas Chemical is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What We Can Learn From Guangzhou Jointas Chemical's P/S?

Guangzhou Jointas Chemical's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Guangzhou Jointas Chemical revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

You should always think about risks. Case in point, we've spotted 5 warning signs for Guangzhou Jointas Chemical you should be aware of, and 3 of them are potentially serious.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.