Ganzhou Tengyuan Cobalt New Material Co., Ltd. (SZSE:301219) Stock Rockets 26% As Investors Are Less Pessimistic Than Expected

Ganzhou Tengyuan Cobalt New Material Co., Ltd. (SZSE:301219) shares have continued their recent momentum with a 26% gain in the last month alone. Looking further back, the 11% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Ganzhou Tengyuan Cobalt New Material's P/S ratio of 2.4x, since the median price-to-sales (or "P/S") ratio for the Chemicals industry in China is also close to 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.

See our latest analysis for Ganzhou Tengyuan Cobalt New Material

What Does Ganzhou Tengyuan Cobalt New Material's Recent Performance Look Like?

Recent times have been advantageous for Ganzhou Tengyuan Cobalt New Material as its revenues have been rising faster 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 the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ganzhou Tengyuan Cobalt New Material.

How Is Ganzhou Tengyuan Cobalt New Material's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Ganzhou Tengyuan Cobalt New Material's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 38%. Pleasingly, revenue has also lifted 164% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 16% over the next year. Meanwhile, the rest of the industry is forecast to expand by 21%, which is noticeably more attractive.

With this information, we find it interesting that Ganzhou Tengyuan Cobalt New Material is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be 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 Ganzhou Tengyuan Cobalt New Material's P/S?

Its shares have lifted substantially and now Ganzhou Tengyuan Cobalt New Material's P/S is back within range of the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look at the analysts forecasts of Ganzhou Tengyuan Cobalt New Material's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Ganzhou Tengyuan Cobalt New Material is showing 1 warning sign in our investment analysis, you should know about.

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).

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.