Jiangsu General Science Technology Co., Ltd. (SHSE:601500) Might Not Be As Mispriced As It Looks

When close to half the companies operating in the Auto Components industry in China have price-to-sales ratios (or "P/S") above 2.1x, you may consider Jiangsu General Science Technology Co., Ltd. (SHSE:601500) as an attractive investment with its 1.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Jiangsu General Science Technology

How Has Jiangsu General Science Technology Performed Recently?

Jiangsu General Science Technology certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jiangsu General Science Technology.

Is There Any Revenue Growth Forecasted For Jiangsu General Science Technology?

Jiangsu General Science Technology'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.

Retrospectively, the last year delivered an exceptional 39% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 39% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 41% during the coming year according to the three analysts following the company. With the industry only predicted to deliver 23%, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Jiangsu General Science Technology's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

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.

A look at Jiangsu General Science Technology's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You need to take note of risks, for example - Jiangsu General Science Technology has 3 warning signs (and 2 which are significant) we think 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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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.