Anhui Tongguan Copper Foil Group Co., Ltd.'s (SZSE:301217) Shares Climb 38% But Its Business Is Yet to Catch Up

Anhui Tongguan Copper Foil Group Co., Ltd. (SZSE:301217) shareholders would be excited to see that the share price has had a great month, posting a 38% gain and recovering from prior weakness. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 2.4% in the last twelve months.

After such a large jump in price, given close to half the companies operating in China's Metals and Mining industry have price-to-sales ratios (or "P/S") below 1.4x, you may consider Anhui Tongguan Copper Foil Group as a stock to potentially avoid with its 2.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Anhui Tongguan Copper Foil Group

How Anhui Tongguan Copper Foil Group Has Been Performing

With revenue growth that's superior to most other companies of late, Anhui Tongguan Copper Foil Group has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Anhui Tongguan Copper Foil Group will help you uncover what's on the horizon.

How Is Anhui Tongguan Copper Foil Group's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Anhui Tongguan Copper Foil Group's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. The latest three year period has also seen a 22% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 11% during the coming year according to the only analyst following the company. That's shaping up to be materially lower than the 13% growth forecast for the broader industry.

With this in consideration, we believe it doesn't make sense that Anhui Tongguan Copper Foil Group's P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Anhui Tongguan Copper Foil Group's P/S?

Anhui Tongguan Copper Foil Group shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've concluded that Anhui Tongguan Copper Foil Group currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Anhui Tongguan Copper Foil Group (of which 1 is concerning!) you should know about.

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.