Jiangsu Nonghua Intelligent Agriculture Technology Co.ltd's (SZSE:000816) 37% Share Price Surge Not Quite Adding Up

Despite an already strong run, Jiangsu Nonghua Intelligent Agriculture Technology Co.ltd (SZSE:000816) shares have been powering on, with a gain of 37% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 52% in the last year.

Following the firm bounce in price, you could be forgiven for thinking Jiangsu Nonghua Intelligent Agriculture Technologyltd is a stock not worth researching with a price-to-sales ratios (or "P/S") of 4.2x, considering almost half the companies in China's Machinery industry have P/S ratios below 3.4x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for Jiangsu Nonghua Intelligent Agriculture Technologyltd

What Does Jiangsu Nonghua Intelligent Agriculture Technologyltd's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Jiangsu Nonghua Intelligent Agriculture Technologyltd over the last year, which is not ideal at all. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. If not, then existing shareholders may be quite nervous about the viability of the share price.

Although there are no analyst estimates available for Jiangsu Nonghua Intelligent Agriculture Technologyltd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Jiangsu Nonghua Intelligent Agriculture Technologyltd?

The only time you'd be truly comfortable seeing a P/S as high as Jiangsu Nonghua Intelligent Agriculture Technologyltd's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a frustrating 4.0% decrease to the company's top line. As a result, revenue from three years ago have also fallen 47% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 22% 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 Nonghua Intelligent Agriculture Technologyltd is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very 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 Nonghua Intelligent Agriculture Technologyltd's P/S

Jiangsu Nonghua Intelligent Agriculture Technologyltd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Jiangsu Nonghua Intelligent Agriculture Technologyltd 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.

Before you take the next step, you should know about the 1 warning sign for Jiangsu Nonghua Intelligent Agriculture Technologyltd that we have uncovered.

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.