Despite an already strong run, Zhejiang Wazam New Materials Co.,LTD. (SHSE:603186) shares have been powering on, with a gain of 25% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 13% over that time.

Even after such a large jump in price, Zhejiang Wazam New MaterialsLTD's price-to-sales (or "P/S") ratio of 1.1x might still make it look like a strong buy right now compared to the wider Electronic industry in China, where around half of the companies have P/S ratios above 3.7x and even P/S above 7x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

What Does Zhejiang Wazam New MaterialsLTD's P/S Mean For Shareholders?

Recent revenue growth for Zhejiang Wazam New MaterialsLTD has been in line with the industry. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

How Is Zhejiang Wazam New MaterialsLTD's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Zhejiang Wazam New MaterialsLTD's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 7.9%. Pleasingly, revenue has also lifted 31% 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 26% as estimated by the one analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 26%, which is not materially different.

In light of this, it's peculiar that Zhejiang Wazam New MaterialsLTD's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

Even after such a strong price move, Zhejiang Wazam New MaterialsLTD's P/S still trails the rest of the industry. 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 examination of Zhejiang Wazam New MaterialsLTD's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Zhejiang Wazam New MaterialsLTD you should be aware of, and 1 of them is potentially serious.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.