Jiangsu Sidike New Materials Science & Technology Co., Ltd.'s (SZSE:300806) 30% Share Price Surge Not Quite Adding Up

Jiangsu Sidike New Materials Science & Technology Co., Ltd. (SZSE:300806) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 35% in the last twelve months.

In spite of the firm bounce in price, it's still not a stretch to say that Jiangsu Sidike New Materials Science & Technology's price-to-sales (or "P/S") ratio of 2.5x 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 Jiangsu Sidike New Materials Science & Technology

How Jiangsu Sidike New Materials Science & Technology Has Been Performing

Revenue has risen firmly for Jiangsu Sidike New Materials Science & Technology recently, which is pleasing to see. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Although there are no analyst estimates available for Jiangsu Sidike New Materials Science & Technology, 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?

In order to justify its P/S ratio, Jiangsu Sidike New Materials Science & Technology would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 14% last year. The latest three year period has also seen a 29% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 23% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Jiangsu Sidike New Materials Science & Technology's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

Jiangsu Sidike New Materials Science & Technology's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of Jiangsu Sidike New Materials Science & Technology revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

And what about other risks? Every company has them, and we've spotted 5 warning signs for Jiangsu Sidike New Materials Science & Technology (of which 2 can't be ignored!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.