Shenzhen Cotran New Material Co.,Ltd. (SZSE:300731) Stocks Shoot Up 25% But Its P/S Still Looks Reasonable

The Shenzhen Cotran New Material Co.,Ltd. (SZSE:300731) share price has done very well over the last month, posting an excellent gain of 25%. The last 30 days bring the annual gain to a very sharp 58%.

Following the firm bounce in price, when almost half of the companies in China's Chemicals industry have price-to-sales ratios (or "P/S") below 2.4x, you may consider Shenzhen Cotran New MaterialLtd as a stock probably not worth researching with its 4.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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View our latest analysis for Shenzhen Cotran New MaterialLtd

What Does Shenzhen Cotran New MaterialLtd's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Shenzhen Cotran New MaterialLtd has been doing relatively well. 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen Cotran New MaterialLtd.

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

There's an inherent assumption that a company should outperform the industry for P/S ratios like Shenzhen Cotran New MaterialLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 58% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 49% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 32% as estimated by the lone analyst watching the company. With the industry only predicted to deliver 24%, the company is positioned for a stronger revenue result.

With this information, we can see why Shenzhen Cotran New MaterialLtd is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Shenzhen Cotran New MaterialLtd's P/S Mean For Investors?

The large bounce in Shenzhen Cotran New MaterialLtd's shares has lifted the company's P/S handsomely. 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.

Our look into Shenzhen Cotran New MaterialLtd shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Shenzhen Cotran New MaterialLtd that you should be aware of.

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

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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.