Wankai New Materials Co., Ltd. (SZSE:301216) Shares Fly 27% But Investors Aren't Buying For Growth

Wankai New Materials Co., Ltd. (SZSE:301216) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 4.4% over the last year.

Even after such a large jump in price, Wankai New Materials may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.4x, since almost half of all companies in the Chemicals industry in China have P/S ratios greater than 2.4x and even P/S higher than 5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for Wankai New Materials

What Does Wankai New Materials' Recent Performance Look Like?

Wankai New Materials' revenue growth of late has been pretty similar to most other companies. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For Wankai New Materials?

In order to justify its P/S ratio, Wankai New Materials would need to produce anemic growth that's substantially trailing the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Although pleasingly revenue has lifted 83% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

Turning to the outlook, the next year should generate growth of 20% as estimated by the two analysts watching the company. With the industry predicted to deliver 25% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Wankai New Materials' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Wankai New Materials' P/S Mean For Investors?

Even after such a strong price move, Wankai New Materials' P/S still trails 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.

We've established that Wankai New Materials maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Having said that, be aware Wankai New Materials is showing 2 warning signs in our investment analysis, you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.