Subdued Growth No Barrier To NanJing Sanchao Advanced Materials Co.,Ltd. (SZSE:300554) With Shares Advancing 52%

NanJing Sanchao Advanced Materials Co.,Ltd. (SZSE:300554) shareholders are no doubt pleased to see that the share price has bounced 52% in the last month, although it is still struggling to make up recently lost ground. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 7.9% in the last twelve months.

Even after such a large jump in price, there still wouldn't be many who think NanJing Sanchao Advanced MaterialsLtd's price-to-sales (or "P/S") ratio of 5.3x is worth a mention when the median P/S in China's Semiconductor industry is similar at about 6.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for NanJing Sanchao Advanced MaterialsLtd

What Does NanJing Sanchao Advanced MaterialsLtd's Recent Performance Look Like?

Recent times have been quite advantageous for NanJing Sanchao Advanced MaterialsLtd as its revenue has been rising very briskly. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for NanJing Sanchao Advanced MaterialsLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, NanJing Sanchao Advanced MaterialsLtd would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 38% last year. Pleasingly, revenue has also lifted 89% 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.

Comparing that to the industry, which is predicted to deliver 37% 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 interesting that NanJing Sanchao Advanced MaterialsLtd is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What Does NanJing Sanchao Advanced MaterialsLtd's P/S Mean For Investors?

NanJing Sanchao Advanced MaterialsLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of NanJing Sanchao Advanced MaterialsLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

Before you take the next step, you should know about the 4 warning signs for NanJing Sanchao Advanced MaterialsLtd (2 are concerning!) that we have uncovered.

If these risks are making you reconsider your opinion on NanJing Sanchao Advanced MaterialsLtd, 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.