Nanjing Hanrui Cobalt Co.,Ltd.'s (SZSE:300618) 47% Jump Shows Its Popularity With Investors

Nanjing Hanrui Cobalt Co.,Ltd. (SZSE:300618) shareholders would be excited to see that the share price has had a great month, posting a 47% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 14% is also fairly reasonable.

Following the firm bounce in price, you could be forgiven for thinking Nanjing Hanrui CobaltLtd is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.1x, considering almost half the companies in China's Metals and Mining industry have P/S ratios below 1.3x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Nanjing Hanrui CobaltLtd

What Does Nanjing Hanrui CobaltLtd's P/S Mean For Shareholders?

Recent times have been advantageous for Nanjing Hanrui CobaltLtd as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Nanjing Hanrui CobaltLtd will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Nanjing Hanrui CobaltLtd would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 9.9%. This was backed up an excellent period prior to see revenue up by 53% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 52% as estimated by the one analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 13%, which is noticeably less attractive.

With this information, we can see why Nanjing Hanrui CobaltLtd is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Nanjing Hanrui CobaltLtd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Nanjing Hanrui CobaltLtd maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Metals and Mining industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Nanjing Hanrui CobaltLtd you should be aware of.

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

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.