Ganzhou Tengyuan Cobalt New Material Co., Ltd. (SZSE:301219) Stock Rockets 29% But Many Are Still Ignoring The Company

Ganzhou Tengyuan Cobalt New Material Co., Ltd. (SZSE:301219) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 71%.

In spite of the firm bounce in price, there still wouldn't be many who think Ganzhou Tengyuan Cobalt New Material's price-to-sales (or "P/S") ratio of 2.6x is worth a mention when the median P/S in China's Chemicals industry is similar at about 2.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Ganzhou Tengyuan Cobalt New Material

What Does Ganzhou Tengyuan Cobalt New Material's P/S Mean For Shareholders?

Recent times have been advantageous for Ganzhou Tengyuan Cobalt New Material as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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.

Is There Some Revenue Growth Forecasted For Ganzhou Tengyuan Cobalt New Material?

The only time you'd be comfortable seeing a P/S like Ganzhou Tengyuan Cobalt New Material's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 26%. The latest three year period has also seen an excellent 90% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 27% over the next year. With the industry only predicted to deliver 25%, the company is positioned for a stronger revenue result.

In light of this, it's curious that Ganzhou Tengyuan Cobalt New Material's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Ganzhou Tengyuan Cobalt New Material's P/S?

Ganzhou Tengyuan Cobalt New Material appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Ganzhou Tengyuan Cobalt New Material currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

You should always think about risks. Case in point, we've spotted 2 warning signs for Ganzhou Tengyuan Cobalt New Material you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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.