Subdued Growth No Barrier To Guangdong Huiyun Titanium Industry Co., Ltd. (SZSE:300891) With Shares Advancing 36%

Guangdong Huiyun Titanium Industry Co., Ltd. (SZSE:300891) shareholders have had their patience rewarded with a 36% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 6.1% isn't as attractive.

Although its price has surged higher, there still wouldn't be many who think Guangdong Huiyun Titanium Industry's price-to-sales (or "P/S") ratio of 2.5x is worth a mention when the median P/S in China's Chemicals industry is similar at about 2.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Guangdong Huiyun Titanium Industry

How Guangdong Huiyun Titanium Industry Has Been Performing

We'd have to say that with no tangible growth over the last year, Guangdong Huiyun Titanium Industry's revenue has been unimpressive. It might be that many expect the uninspiring revenue performance to only match most other companies at best over the coming period, which has kept the P/S from rising. If not, then existing shareholders may be feeling hopeful about the future direction 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 Guangdong Huiyun Titanium Industry's earnings, revenue and cash flow.

How Is Guangdong Huiyun Titanium Industry's Revenue Growth Trending?

In order to justify its P/S ratio, Guangdong Huiyun Titanium Industry would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Fortunately, a few good years before that means that it was still able to grow revenue by 26% in total over the last three years. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

This is in contrast to the rest of the industry, which is expected to grow by 21% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Guangdong Huiyun Titanium Industry'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. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Final Word

Its shares have lifted substantially and now Guangdong Huiyun Titanium Industry's P/S is back within range of 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.

We've established that Guangdong Huiyun Titanium Industry's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Guangdong Huiyun Titanium Industry (3 can't be ignored!) that you should be aware of before investing here.

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.