Jiangsu General Science Technology Co., Ltd. (SHSE:601500) Soars 29% But It's A Story Of Risk Vs Reward

Jiangsu General Science Technology Co., Ltd. (SHSE:601500) shares have continued their recent momentum with a 29% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 39% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Jiangsu General Science Technology's price-to-sales (or "P/S") ratio of 1.9x right now seems quite "middle-of-the-road" compared to the Auto Components industry in China, where the median P/S ratio is around 2.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Jiangsu General Science Technology

What Does Jiangsu General Science Technology's P/S Mean For Shareholders?

Recent times haven't been great for Jiangsu General Science Technology as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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 Some 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 moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.9% last year. Pleasingly, revenue has also lifted 42% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 39% as estimated by the dual analysts watching the company. With the industry only predicted to deliver 25%, the company is positioned for a stronger revenue result.

In light of this, it's curious that Jiangsu General Science Technology's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Jiangsu General Science Technology's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Looking at Jiangsu General Science Technology's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Jiangsu General Science Technology, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Jiangsu General Science Technology, 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.