Nantong Acetic Acid Chemical Co., Ltd.'s (SHSE:603968) Revenues Are Not Doing Enough For Some Investors

Simply Wall St · 10/15 22:50

When close to half the companies operating in the Chemicals industry in China have price-to-sales ratios (or "P/S") above 2.1x, you may consider Nantong Acetic Acid Chemical Co., Ltd. (SHSE:603968) as an attractive investment with its 0.7x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Nantong Acetic Acid Chemical

ps-multiple-vs-industry
SHSE:603968 Price to Sales Ratio vs Industry October 15th 2024

What Does Nantong Acetic Acid Chemical's P/S Mean For Shareholders?

For example, consider that Nantong Acetic Acid Chemical's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Nantong Acetic Acid Chemical will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Nantong Acetic Acid Chemical, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

Nantong Acetic Acid Chemical's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 13%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 8.6% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Comparing that to the industry, which is predicted to deliver 21% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why Nantong Acetic Acid Chemical 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 Bottom Line On Nantong Acetic Acid Chemical's P/S

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 Nantong Acetic Acid Chemical confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Nantong Acetic Acid Chemical that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.