Take Care Before Diving Into The Deep End On Jiangxi GETO New Materials Corporation Limited (SZSE:300986)

It's not a stretch to say that Jiangxi GETO New Materials Corporation Limited's (SZSE:300986) price-to-sales (or "P/S") ratio of 1.1x right now seems quite "middle-of-the-road" for companies in the Metals and Mining industry in China, where the median P/S ratio is around 1.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Jiangxi GETO New Materials

How Jiangxi GETO New Materials Has Been Performing

Jiangxi GETO New Materials certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on analyst estimates for the company? Then our free report on Jiangxi GETO New Materials will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Jiangxi GETO New Materials?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Jiangxi GETO New Materials' to be considered reasonable.

Retrospectively, the last year delivered a decent 10% gain to the company's revenues. The latest three year period has also seen an excellent 79% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 22% over the next year. With the industry only predicted to deliver 14%, the company is positioned for a stronger revenue result.

With this information, we find it interesting that Jiangxi GETO New Materials is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

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.

We've established that Jiangxi GETO New Materials currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Plus, you should also learn about these 4 warning signs we've spotted with Jiangxi GETO New Materials (including 2 which are a bit concerning).

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.