Omat Advanced Materials (Guangdong) Co.,Ltd. (SHSE:688530) Stock Rockets 27% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, Omat Advanced Materials (Guangdong) Co.,Ltd. (SHSE:688530) shares have been powering on, with a gain of 27% in the last thirty days. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Following the firm bounce in price, Omat Advanced Materials (Guangdong)Ltd may be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 8.9x, since almost half of all companies in the Semiconductor in China have P/S ratios under 6.9x and even P/S lower than 3x 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 as high as it is.

See our latest analysis for Omat Advanced Materials (Guangdong)Ltd

What Does Omat Advanced Materials (Guangdong)Ltd's Recent Performance Look Like?

For example, consider that Omat Advanced Materials (Guangdong)Ltd's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Omat Advanced Materials (Guangdong)Ltd's earnings, revenue and cash flow.

How Is Omat Advanced Materials (Guangdong)Ltd's Revenue Growth Trending?

Omat Advanced Materials (Guangdong)Ltd's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 12%. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Comparing that to the industry, which is predicted to deliver 46% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it concerning that Omat Advanced Materials (Guangdong)Ltd is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From Omat Advanced Materials (Guangdong)Ltd's P/S?

Omat Advanced Materials (Guangdong)Ltd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

The fact that Omat Advanced Materials (Guangdong)Ltd currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you take the next step, you should know about the 3 warning signs for Omat Advanced Materials (Guangdong)Ltd (2 are potentially serious!) that we have uncovered.

If these risks are making you reconsider your opinion on Omat Advanced Materials (Guangdong)Ltd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.