The Market Lifts Jinlong Machinery & Electronic Co.,Ltd (SZSE:300032) Shares 41% But It Can Do More

Those holding Jinlong Machinery & Electronic Co.,Ltd (SZSE:300032) shares would be relieved that the share price has rebounded 41% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 23% over that time.

Although its price has surged higher, it would still be understandable if you think Jinlong Machinery & ElectronicLtd is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 1x, considering almost half the companies in China's Electrical industry have P/S ratios above 2.1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Jinlong Machinery & ElectronicLtd

What Does Jinlong Machinery & ElectronicLtd's Recent Performance Look Like?

Revenue has risen at a steady rate over the last year for Jinlong Machinery & ElectronicLtd, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to degrade, 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Jinlong Machinery & ElectronicLtd will help you shine a light on its historical performance.

How Is Jinlong Machinery & ElectronicLtd's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Jinlong Machinery & ElectronicLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 5.1%. The latest three year period has also seen an excellent 118% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 26% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Jinlong Machinery & ElectronicLtd's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

What Does Jinlong Machinery & ElectronicLtd's P/S Mean For Investors?

The latest share price surge wasn't enough to lift Jinlong Machinery & ElectronicLtd's P/S close to the industry median. 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're very surprised to see Jinlong Machinery & ElectronicLtd currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Jinlong Machinery & ElectronicLtd (1 is significant!) that you should be aware of.

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.