Shandong Dongyue Organosilicon Materials Co., Ltd. (SZSE:300821) Looks Just Right With A 50% Price Jump

Shandong Dongyue Organosilicon Materials Co., Ltd. (SZSE:300821) shareholders would be excited to see that the share price has had a great month, posting a 50% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 3.7% isn't as attractive.

Even after such a large jump in price, there still wouldn't be many who think Shandong Dongyue Organosilicon Materials' price-to-sales (or "P/S") ratio of 2.2x is worth a mention when it essentially matches the median P/S in China's Chemicals industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Shandong Dongyue Organosilicon Materials

How Has Shandong Dongyue Organosilicon Materials Performed Recently?

For instance, Shandong Dongyue Organosilicon Materials' receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shandong Dongyue Organosilicon Materials' earnings, revenue and cash flow.

How Is Shandong Dongyue Organosilicon Materials' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Shandong Dongyue Organosilicon 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 12%. Still, the latest three year period has seen an excellent 68% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

It's interesting to note that the rest of the industry is similarly expected to grow by 21% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this in consideration, it's clear to see why Shandong Dongyue Organosilicon Materials' P/S matches up closely to its industry peers. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

What We Can Learn From Shandong Dongyue Organosilicon Materials' P/S?

Shandong Dongyue Organosilicon Materials' 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.

It appears to us that Shandong Dongyue Organosilicon Materials maintains its moderate P/S off the back of its recent three-year growth being in line with the wider industry forecast. With previous revenue trends that keep up with the current industry outlook, it's hard to justify the company's P/S ratio deviating much from it's current point. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

Plus, you should also learn about this 1 warning sign we've spotted with Shandong Dongyue Organosilicon Materials.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.