Getting In Cheap On Jiangsu HHCK Advanced Materials Co.,Ltd (SHSE:688535) Is Unlikely

Jiangsu HHCK Advanced Materials Co.,Ltd's (SHSE:688535) price-to-sales (or "P/S") ratio of 20.4x might make it look like a strong sell right now compared to the Semiconductor industry in China, where around half of the companies have P/S ratios below 6.3x and even P/S below 3x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for Jiangsu HHCK Advanced MaterialsLtd

How Has Jiangsu HHCK Advanced MaterialsLtd Performed Recently?

Jiangsu HHCK Advanced MaterialsLtd hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Jiangsu HHCK Advanced MaterialsLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

Jiangsu HHCK Advanced MaterialsLtd's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much 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 6.7%. Regardless, revenue has managed to lift by a handy 14% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 33% as estimated by the one analyst watching the company. With the industry predicted to deliver 34% growth , the company is positioned for a comparable revenue result.

With this information, we find it interesting that Jiangsu HHCK Advanced MaterialsLtd is trading at a high P/S compared to the industry. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

What We Can Learn From Jiangsu HHCK Advanced MaterialsLtd's P/S?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Analysts are forecasting Jiangsu HHCK Advanced MaterialsLtd's revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. A positive change is needed in order to justify the current price-to-sales ratio.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Jiangsu HHCK Advanced MaterialsLtd that you need to be mindful of.

If you're unsure about the strength of Jiangsu HHCK Advanced MaterialsLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.