Market Might Still Lack Some Conviction On Daqo New Energy Corp. (NYSE:DQ) Even After 36% Share Price Boost

Daqo New Energy Corp. (NYSE:DQ) shares have had a really impressive month, gaining 36% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 12% is also fairly reasonable.

Although its price has surged higher, Daqo New Energy may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.6x, considering almost half of all companies in the Semiconductor industry in the United States have P/S ratios greater than 4x and even P/S higher than 11x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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View our latest analysis for Daqo New Energy

How Daqo New Energy Has Been Performing

While the industry has experienced revenue growth lately, Daqo New Energy's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Daqo New Energy will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Daqo New Energy?

Daqo New Energy's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 63%. This means it has also seen a slide in revenue over the longer-term as revenue is down 73% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 39% per year as estimated by the nine analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 21% per year, which is noticeably less attractive.

With this in consideration, we find it intriguing that Daqo New Energy's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What Does Daqo New Energy's P/S Mean For Investors?

Daqo New Energy's recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

Daqo New Energy's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Daqo New Energy with six simple checks.

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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