Changzhou Tiansheng New Materials Group Co., Ltd.'s (SZSE:300169) 29% Share Price Plunge Could Signal Some Risk

The Changzhou Tiansheng New Materials Group Co., Ltd. (SZSE:300169) share price has fared very poorly over the last month, falling by a substantial 29%. The last month has meant the stock is now only up 6.5% during the last year.

Although its price has dipped substantially, it's still not a stretch to say that Changzhou Tiansheng New Materials Group's price-to-sales (or "P/S") ratio of 2.3x right now seems quite "middle-of-the-road" compared to the Chemicals industry in China, where the median P/S ratio is around 2x. 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 Changzhou Tiansheng New Materials Group

How Changzhou Tiansheng New Materials Group Has Been Performing

The recent revenue growth at Changzhou Tiansheng New Materials Group would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. Those who are bullish on Changzhou Tiansheng New Materials Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

Changzhou Tiansheng New Materials Group'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.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.5% last year. Still, lamentably revenue has fallen 37% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 23% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we find it worrying that Changzhou Tiansheng New Materials Group's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. 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.

The Final Word

With its share price dropping off a cliff, the P/S for Changzhou Tiansheng New Materials Group looks to be in line with the rest of the Chemicals industry. 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.

Our look at Changzhou Tiansheng New Materials Group revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given 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.

It is also worth noting that we have found 2 warning signs for Changzhou Tiansheng New Materials Group that you need to take into consideration.

If you're unsure about the strength of Changzhou Tiansheng New Materials Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.