With a median price-to-sales (or "P/S") ratio of close to 1.7x in the Chemicals industry in China, you could be forgiven for feeling indifferent about Ganzhou Tengyuan Cobalt New Material Co., Ltd.'s (SZSE:301219) P/S ratio, which comes in at about the same. 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.

How Has Ganzhou Tengyuan Cobalt New Material Performed Recently?

Recent times have been advantageous for Ganzhou Tengyuan Cobalt New Material as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Is There Some Revenue Growth Forecasted For Ganzhou Tengyuan Cobalt New Material?

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 an exceptional 38% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 85% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 22% over the next year. With the industry predicted to deliver 23% growth , the company is positioned for a comparable revenue result.

In light of this, it's understandable that Ganzhou Tengyuan Cobalt New Material's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

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. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Ganzhou Tengyuan Cobalt New Material, and understanding should be part of your investment process.

If you're unsure about the strength of Ganzhou Tengyuan Cobalt New Material's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.