When you see that almost half of the companies in the Metals and Mining industry in China have price-to-sales ratios (or "P/S") above 1.3x, Jinzhou Yongshan Lithium Co., Ltd. (SHSE:603399) looks to be giving off some buy signals with its 0.5x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Jinzhou Yongshan Lithium's Recent Performance Look Like?

The recent revenue growth at Jinzhou Yongshan Lithium would have to be considered satisfactory if not spectacular. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Jinzhou Yongshan Lithium will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Is There Any Revenue Growth Forecasted For Jinzhou Yongshan Lithium?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Jinzhou Yongshan Lithium's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 6.3%. This was backed up an excellent period prior to see revenue up by 228% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Comparing that to the industry, which is only predicted to deliver 15% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's peculiar that Jinzhou Yongshan Lithium's P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Jinzhou Yongshan Lithium'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.

We're very surprised to see Jinzhou Yongshan Lithium currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Having said that, be aware Jinzhou Yongshan Lithium is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Jinzhou Yongshan Lithium, 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.