Subdued Growth No Barrier To C&D Newin Paper & Pulp Corporation Limited (HKG:731) With Shares Advancing 27%

C&D Newin Paper & Pulp Corporation Limited (HKG:731) shareholders have had their patience rewarded with a 27% share price jump in the last month. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 28% over that time.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about C&D Newin Paper & Pulp's P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Trade Distributors industry in Hong Kong is also close to 0.4x. 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.

Check out our latest analysis for C&D Newin Paper & Pulp

What Does C&D Newin Paper & Pulp's P/S Mean For Shareholders?

The recent revenue growth at C&D Newin Paper & Pulp would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. If not, then at least existing shareholders probably aren't too pessimistic about the future direction 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 C&D Newin Paper & Pulp's earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, C&D Newin Paper & Pulp would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 4.4%. Still, revenue has barely risen at all in aggregate from three years ago, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 3.8% shows it's noticeably less attractive.

With this information, we find it interesting that C&D Newin Paper & Pulp is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does C&D Newin Paper & Pulp's P/S Mean For Investors?

Its shares have lifted substantially and now C&D Newin Paper & Pulp's P/S is back within range of the industry median. 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 C&D Newin Paper & Pulp 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. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Plus, you should also learn about these 2 warning signs we've spotted with C&D Newin Paper & Pulp (including 1 which makes us a bit uncomfortable).

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).

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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.