Investors Still Aren't Entirely Convinced By Guangdong Haomei New Materials Co.,Ltd's (SZSE:002988) Revenues Despite 35% Price Jump

Guangdong Haomei New Materials Co.,Ltd (SZSE:002988) shares have continued their recent momentum with a 35% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 41% in the last twelve months.

Although its price has surged higher, Guangdong Haomei New MaterialsLtd may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.8x, considering almost half of all companies in the Metals and Mining industry in China have P/S ratios greater than 1.5x and even P/S higher than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Guangdong Haomei New MaterialsLtd

What Does Guangdong Haomei New MaterialsLtd's Recent Performance Look Like?

Guangdong Haomei New MaterialsLtd certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Guangdong Haomei New MaterialsLtd.

How Is Guangdong Haomei New MaterialsLtd's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Guangdong Haomei New MaterialsLtd's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 20% last year. As a result, it also grew revenue by 29% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 21% over the next year. That's shaping up to be materially higher than the 15% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Guangdong Haomei New MaterialsLtd's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

The latest share price surge wasn't enough to lift Guangdong Haomei New MaterialsLtd's P/S close to the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

To us, it seems Guangdong Haomei New MaterialsLtd currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

You need to take note of risks, for example - Guangdong Haomei New MaterialsLtd has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

If these risks are making you reconsider your opinion on Guangdong Haomei New MaterialsLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.