The Chongqing Iron & Steel Company Limited (HKG:1053) share price has done very well over the last month, posting an excellent gain of 102%. The last month tops off a massive increase of 177% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Chongqing Iron & Steel's price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Hong Kong's Metals and Mining industry is similar at about 0.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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View our latest analysis for Chongqing Iron & Steel

How Chongqing Iron & Steel Has Been Performing

While the industry has experienced revenue growth lately, Chongqing Iron & Steel's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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How Is Chongqing Iron & Steel's Revenue Growth Trending?

Chongqing Iron & Steel's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 29%. As a result, revenue from three years ago have also fallen 32% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the only analyst covering the company suggest revenue growth is heading into negative territory, declining 6.0% over the next year. That's not great when the rest of the industry is expected to grow by 12%.

With this in consideration, we think it doesn't make sense that Chongqing Iron & Steel's P/S is closely matching its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Key Takeaway

Its shares have lifted substantially and now Chongqing Iron & Steel's P/S is back within range of the industry median. 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 check of Chongqing Iron & Steel's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

You should always think about risks. Case in point, we've spotted 1 warning sign for Chongqing Iron & Steel you should be aware of.

If these risks are making you reconsider your opinion on Chongqing Iron & Steel, explore our interactive list of high quality stocks to get an idea of what else is out there.

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