Improved Revenues Required Before Jiangsu Zhongchao Holding Co., Ltd. (SZSE:002471) Stock's 36% Jump Looks Justified

Jiangsu Zhongchao Holding Co., Ltd. (SZSE:002471) shareholders have had their patience rewarded with a 36% share price jump in the last month. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 12% over that time.

In spite of the firm bounce in price, Jiangsu Zhongchao Holding's price-to-sales (or "P/S") ratio of 0.6x might still 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 2.4x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Jiangsu Zhongchao Holding

What Does Jiangsu Zhongchao Holding's P/S Mean For Shareholders?

For example, consider that Jiangsu Zhongchao Holding's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Jiangsu Zhongchao Holding's earnings, revenue and cash flow.

How Is Jiangsu Zhongchao Holding's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Jiangsu Zhongchao Holding's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.8%. This means it has also seen a slide in revenue over the longer-term as revenue is down 3.0% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 23% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why Jiangsu Zhongchao Holding's P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Jiangsu Zhongchao Holding's P/S?

The latest share price surge wasn't enough to lift Jiangsu Zhongchao Holding's P/S close to the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

It's no surprise that Jiangsu Zhongchao Holding maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Jiangsu Zhongchao Holding (1 doesn't sit too well with us!) that you need to be mindful of.

If you're unsure about the strength of Jiangsu Zhongchao Holding'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.