There's Reason For Concern Over Jiangsu Nonghua Intelligent Agriculture Technology Co.ltd's (SZSE:000816) Massive 42% Price Jump

Despite an already strong run, Jiangsu Nonghua Intelligent Agriculture Technology Co.ltd (SZSE:000816) shares have been powering on, with a gain of 42% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 17% in the last twelve months.

In spite of the firm bounce in price, it's still not a stretch to say that Jiangsu Nonghua Intelligent Agriculture Technologyltd's price-to-sales (or "P/S") ratio of 2.8x right now seems quite "middle-of-the-road" compared to the Machinery industry in China, seeing as it matches the P/S ratio of the wider industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Jiangsu Nonghua Intelligent Agriculture Technologyltd

How Has Jiangsu Nonghua Intelligent Agriculture Technologyltd Performed Recently?

Revenue has risen at a steady rate over the last year for Jiangsu Nonghua Intelligent Agriculture Technologyltd, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Jiangsu Nonghua Intelligent Agriculture Technologyltd 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 Nonghua Intelligent Agriculture Technologyltd would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.1% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 48% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 23% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Jiangsu Nonghua Intelligent Agriculture Technologyltd's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Key Takeaway

Its shares have lifted substantially and now Jiangsu Nonghua Intelligent Agriculture Technologyltd'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 Nonghua Intelligent Agriculture Technologyltd 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. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. 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 settle on your opinion, we've discovered 1 warning sign for Jiangsu Nonghua Intelligent Agriculture Technologyltd that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.