China Glaze Co.,Ltd.'s (TWSE:1809) 30% Jump Shows Its Popularity With Investors

China Glaze Co.,Ltd. (TWSE:1809) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 85% in the last year.

Even after such a large jump in price, it's still not a stretch to say that China GlazeLtd's price-to-sales (or "P/S") ratio of 2x right now seems quite "middle-of-the-road" compared to the Chemicals industry in Taiwan, where the median P/S ratio is around 1.9x. 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.

Check out our latest analysis for China GlazeLtd

What Does China GlazeLtd's P/S Mean For Shareholders?

For example, consider that China GlazeLtd's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on China GlazeLtd will help you shine a light on its historical performance.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like China GlazeLtd's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 3.1%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 28% in total. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 7.6% shows it's about the same on an annualised basis.

In light of this, it's understandable that China GlazeLtd's P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Key Takeaway

Its shares have lifted substantially and now China GlazeLtd'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.

As we've seen, China GlazeLtd's three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Currently, with a past revenue trend that aligns closely wit the industry outlook, shareholders are confident the company's future revenue outlook won't contain any major surprises. Given the current circumstances, it seems improbable that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

You always need to take note of risks, for example - China GlazeLtd has 2 warning signs we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.