Some Confidence Is Lacking In Jiangsu Boxin Investing&Holdings Co.,Ltd. (SHSE:600083) As Shares Slide 26%

Jiangsu Boxin Investing&Holdings Co.,Ltd. (SHSE:600083) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 79% share price decline.

Even after such a large drop in price, you could still be forgiven for thinking Jiangsu Boxin Investing&HoldingsLtd is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 3.4x, considering almost half the companies in China's Trade Distributors industry have P/S ratios below 0.8x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Jiangsu Boxin Investing&HoldingsLtd

How Jiangsu Boxin Investing&HoldingsLtd Has Been Performing

For example, consider that Jiangsu Boxin Investing&HoldingsLtd's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Jiangsu Boxin Investing&HoldingsLtd's earnings, revenue and cash flow.

How Is Jiangsu Boxin Investing&HoldingsLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Jiangsu Boxin Investing&HoldingsLtd's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 66%. This means it has also seen a slide in revenue over the longer-term as revenue is down 81% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 14% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Jiangsu Boxin Investing&HoldingsLtd is trading at a P/S higher than the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Jiangsu Boxin Investing&HoldingsLtd's P/S

A significant share price dive has done very little to deflate Jiangsu Boxin Investing&HoldingsLtd's very lofty 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've established that Jiangsu Boxin Investing&HoldingsLtd currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Jiangsu Boxin Investing&HoldingsLtd (at least 1 which is a bit concerning), and understanding these should be part of your investment process.

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.