There's No Escaping Jiangsu Canlon Building Materials Co., Ltd.'s (SZSE:300715) Muted Revenues Despite A 32% Share Price Rise

Despite an already strong run, Jiangsu Canlon Building Materials Co., Ltd. (SZSE:300715) shares have been powering on, with a gain of 32% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 17% is also fairly reasonable.

In spite of the firm bounce in price, Jiangsu Canlon Building Materials' price-to-sales (or "P/S") ratio of 1.6x might still make it look like a buy right now compared to the Chemicals industry in China, where around half of the companies have P/S ratios above 2.5x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Jiangsu Canlon Building Materials

What Does Jiangsu Canlon Building Materials' Recent Performance Look Like?

Jiangsu Canlon Building Materials could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still 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.

Keen to find out how analysts think Jiangsu Canlon Building Materials' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Jiangsu Canlon Building Materials' Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Jiangsu Canlon Building Materials' to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 5.3%. As a result, revenue from three years ago have also fallen 3.8% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 2.2% during the coming year according to the lone analyst following the company. With the industry predicted to deliver 25% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Jiangsu Canlon Building Materials' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

The latest share price surge wasn't enough to lift Jiangsu Canlon Building Materials' P/S close to the industry median. 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.

As we suspected, our examination of Jiangsu Canlon Building Materials' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 3 warning signs for Jiangsu Canlon Building Materials you should be aware of.

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.