Getting In Cheap On Hangzhou Jingye Intelligent Technology Co., Ltd. (SHSE:688290) Might Be Difficult

When close to half the companies in the Machinery industry in China have price-to-sales ratios (or "P/S") below 2.9x, you may consider Hangzhou Jingye Intelligent Technology Co., Ltd. (SHSE:688290) as a stock to avoid entirely with its 17.5x P/S ratio. 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.

Check out our latest analysis for Hangzhou Jingye Intelligent Technology

What Does Hangzhou Jingye Intelligent Technology's P/S Mean For Shareholders?

Hangzhou Jingye Intelligent Technology hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hangzhou Jingye Intelligent Technology.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Hangzhou Jingye Intelligent Technology's to be considered reasonable.

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 41%. Even so, admirably revenue has lifted 32% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Looking ahead now, revenue is anticipated to climb by 144% during the coming year according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 27%, which is noticeably less attractive.

In light of this, it's understandable that Hangzhou Jingye Intelligent Technology's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Hangzhou Jingye Intelligent Technology's P/S Mean For Investors?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Hangzhou Jingye Intelligent Technology maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Machinery industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Having said that, be aware Hangzhou Jingye Intelligent Technology is showing 4 warning signs in our investment analysis, you should know about.

If you're unsure about the strength of Hangzhou Jingye Intelligent Technology'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.