Guangdong Jiayuan Technology Co.,Ltd. (SHSE:688388) Could Be Riskier Than It Looks

Guangdong Jiayuan Technology Co.,Ltd.'s (SHSE:688388) price-to-sales (or "P/S") ratio of 1.3x might make it look like a buy right now compared to the Electrical industry in China, where around half of the companies have P/S ratios above 2.5x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Guangdong Jiayuan TechnologyLtd

What Does Guangdong Jiayuan TechnologyLtd's Recent Performance Look Like?

Guangdong Jiayuan TechnologyLtd certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Guangdong Jiayuan TechnologyLtd will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Guangdong Jiayuan TechnologyLtd?

In order to justify its P/S ratio, Guangdong Jiayuan TechnologyLtd would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 11%. Pleasingly, revenue has also lifted 133% 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.

Looking ahead now, revenue is anticipated to climb by 36% during the coming year according to the dual analysts following the company. That's shaping up to be materially higher than the 25% growth forecast for the broader industry.

In light of this, it's peculiar that Guangdong Jiayuan TechnologyLtd'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

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.

A look at Guangdong Jiayuan TechnologyLtd's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

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 Guangdong Jiayuan TechnologyLtd with six simple checks.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.