The Jiangsu Baichuan High-Tech New Materials Co., Ltd (SZSE:002455) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. Still, a bad month hasn't completely ruined the past year with the stock gaining 35%, which is great even in a bull market.

After such a large drop in price, Jiangsu Baichuan High-Tech New Materials' price-to-sales (or "P/S") ratio of 1.3x might make it look like a buy right now compared to the Chemicals industry in China, where around half of the companies have P/S ratios above 1.9x and even P/S above 4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

How Jiangsu Baichuan High-Tech New Materials Has Been Performing

Revenue has risen firmly for Jiangsu Baichuan High-Tech New Materials recently, which is pleasing to see. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. Those who are bullish on Jiangsu Baichuan High-Tech New Materials will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

How Is Jiangsu Baichuan High-Tech New Materials' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Jiangsu Baichuan High-Tech New Materials' is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company grew revenue by an impressive 15% last year. Pleasingly, revenue has also lifted 66% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 23% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Jiangsu Baichuan High-Tech New Materials is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Final Word

The southerly movements of Jiangsu Baichuan High-Tech New Materials' shares means its P/S is now sitting at a pretty low level. 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.

As we suspected, our examination of Jiangsu Baichuan High-Tech New Materials revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Jiangsu Baichuan High-Tech New Materials that you should be aware of.

If these risks are making you reconsider your opinion on Jiangsu Baichuan High-Tech New Materials, 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.

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