Despite an already strong run, Suzhou Longjie Special Fiber Co., Ltd. (SHSE:603332) shares have been powering on, with a gain of 34% in the last thirty days. Looking further back, the 15% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, Suzhou Longjie Special Fiber may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.3x, since almost half of all companies in the Chemicals industry in China have P/S ratios greater than 2.2x and even P/S higher than 5x are not unusual. 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 Has Suzhou Longjie Special Fiber Performed Recently?

With revenue growth that's exceedingly strong of late, Suzhou Longjie Special Fiber has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Suzhou Longjie Special Fiber's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 50% last year. The latest three year period has also seen an excellent 82% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 23% shows it's about the same on an annualised basis.

With this information, we find it odd that Suzhou Longjie Special Fiber is trading at a P/S lower than the industry. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

What Does Suzhou Longjie Special Fiber's P/S Mean For Investors?

Despite Suzhou Longjie Special Fiber's share price climbing recently, its P/S still lags most other companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Suzhou Longjie Special Fiber revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's performance. revenue trends suggest that the risk of a price decline is low, investors appear to perceive a possibility of revenue volatility in the future.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Suzhou Longjie Special Fiber (of which 1 is significant!) you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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