Despite an already strong run, Crystal Clear Electronic Material Co.,Ltd (SZSE:300655) shares have been powering on, with a gain of 32% in the last thirty days. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Following the firm bounce in price, given around half the companies in China's Chemicals industry have price-to-sales ratios (or "P/S") below 2.4x, you may consider Crystal Clear Electronic MaterialLtd as a stock to avoid entirely with its 8.5x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

What Does Crystal Clear Electronic MaterialLtd's P/S Mean For Shareholders?

Crystal Clear Electronic MaterialLtd's revenue growth of late has been pretty similar to most other companies. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is Crystal Clear Electronic MaterialLtd's Revenue Growth Trending?

Crystal Clear Electronic MaterialLtd's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 13% drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 23% during the coming year according to the four analysts following the company. That's shaping up to be materially lower than the 26% growth forecast for the broader industry.

With this in consideration, we believe it doesn't make sense that Crystal Clear Electronic MaterialLtd's P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Crystal Clear Electronic MaterialLtd's P/S Mean For Investors?

Shares in Crystal Clear Electronic MaterialLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

It comes as a surprise to see Crystal Clear Electronic MaterialLtd trade at such a high P/S given the revenue forecasts look less than stellar. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. At these price levels, investors should remain cautious, particularly if things don't improve.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Crystal Clear Electronic MaterialLtd (of which 1 is significant!) you should know about.

If you're unsure about the strength of Crystal Clear Electronic MaterialLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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