Ganzhou Tengyuan Cobalt New Material Co., Ltd. (SZSE:301219) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 4.5% over the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Ganzhou Tengyuan Cobalt New Material's price-to-sales (or "P/S") ratio of 2.5x right now seems quite "middle-of-the-road" compared to the Chemicals industry in China, where the median P/S ratio is around 2.2x. 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.

What Does Ganzhou Tengyuan Cobalt New Material's P/S Mean For Shareholders?

Ganzhou Tengyuan Cobalt New Material could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 Ganzhou Tengyuan Cobalt New Material's to be considered reasonable.

Retrospectively, the last year delivered a decent 4.6% gain to the company's revenues. Pleasingly, revenue has also lifted 186% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 21% as estimated by the two analysts watching the company. That's shaping up to be similar to the 22% growth forecast for the broader industry.

With this in mind, it makes sense that Ganzhou Tengyuan Cobalt New Material's P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

Its shares have lifted substantially and now Ganzhou Tengyuan Cobalt New Material'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.

A Ganzhou Tengyuan Cobalt New Material's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Chemicals industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. Unless these conditions change, they will continue to support the share price at these levels.

Before you take the next step, you should know about the 3 warning signs for Ganzhou Tengyuan Cobalt New Material (1 is significant!) that we have uncovered.

If these risks are making you reconsider your opinion on Ganzhou Tengyuan Cobalt New Material, 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.