Ningbo Bohui Chemical Technology Co.,Ltd (SZSE:300839) Surges 37% Yet Its Low P/S Is No Reason For Excitement

Despite an already strong run, Ningbo Bohui Chemical Technology Co.,Ltd (SZSE:300839) shares have been powering on, with a gain of 37% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 28% in the last twelve months.

In spite of the firm bounce in price, Ningbo Bohui Chemical TechnologyLtd's price-to-sales (or "P/S") ratio of 0.6x 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 2.2x 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 Ningbo Bohui Chemical TechnologyLtd

How Ningbo Bohui Chemical TechnologyLtd Has Been Performing

There hasn't been much to differentiate Ningbo Bohui Chemical TechnologyLtd's and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. Those who are bullish on Ningbo Bohui Chemical TechnologyLtd will be hoping that this isn't the case.

Keen to find out how analysts think Ningbo Bohui Chemical TechnologyLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Ningbo Bohui Chemical TechnologyLtd's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a decent 3.0% gain to the company's revenues. Pleasingly, revenue has also lifted 156% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 14% as estimated by the lone analyst watching the company. That's shaping up to be materially lower than the 21% growth forecast for the broader industry.

With this in consideration, its clear as to why Ningbo Bohui Chemical TechnologyLtd's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Ningbo Bohui Chemical TechnologyLtd's stock price has surged recently, but its but its P/S still remains modest. 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.

As expected, our analysis of Ningbo Bohui Chemical TechnologyLtd's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Ningbo Bohui Chemical TechnologyLtd (of which 1 can't be ignored!) you should know about.

If these risks are making you reconsider your opinion on Ningbo Bohui Chemical TechnologyLtd, 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.