There wouldn't be many who think Ganzhou Tengyuan Cobalt New Material Co., Ltd.'s (SZSE:301219) price-to-sales (or "P/S") ratio of 2.2x is worth a mention when the median P/S for the Chemicals industry in China is similar at about 2.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Ganzhou Tengyuan Cobalt New Material

How Ganzhou Tengyuan Cobalt New Material Has Been Performing

Recent times have been advantageous for Ganzhou Tengyuan Cobalt New Material as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

Ganzhou Tengyuan Cobalt New Material's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

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. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 21% as estimated by the dual analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 29%, which is noticeably more attractive.

With this in mind, we find it intriguing that Ganzhou Tengyuan Cobalt New Material's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

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

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.

Our look at the analysts forecasts of Ganzhou Tengyuan Cobalt New Material's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Ganzhou Tengyuan Cobalt New Material (of which 1 is significant!) you should know about.

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.