There's Reason For Concern Over Jiangsu Yueda Investment Co., Ltd.'s (SHSE:600805) Massive 26% Price Jump

Jiangsu Yueda Investment Co., Ltd. (SHSE:600805) shares have had a really impressive month, gaining 26% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 3.4% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that Jiangsu Yueda Investment's price-to-sales (or "P/S") ratio of 1.1x right now seems quite "middle-of-the-road" compared to the Industrials industry in China, where the median P/S ratio is around 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Jiangsu Yueda Investment

What Does Jiangsu Yueda Investment's Recent Performance Look Like?

Jiangsu Yueda Investment has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. Those who are bullish on Jiangsu Yueda Investment will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Jiangsu Yueda Investment will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, Jiangsu Yueda Investment would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 18% last year. Still, revenue has fallen 10% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 65% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Jiangsu Yueda Investment's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On Jiangsu Yueda Investment's P/S

Its shares have lifted substantially and now Jiangsu Yueda Investment's P/S is back within range of the industry median. 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.

The fact that Jiangsu Yueda Investment currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more 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.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Jiangsu Yueda Investment with six simple checks.

If you're unsure about the strength of Jiangsu Yueda Investment's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.