Subdued Growth No Barrier To Jiayu Holding Co.,Ltd. (SZSE:300117) With Shares Advancing 29%

Despite an already strong run, Jiayu Holding Co.,Ltd. (SZSE:300117) shares have been powering on, with a gain of 29% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 36% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that Jiayu HoldingLtd's price-to-sales (or "P/S") ratio of 1.7x right now seems quite "middle-of-the-road" compared to the Building industry in China, where the median P/S ratio is around 1.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Jiayu HoldingLtd

What Does Jiayu HoldingLtd's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Jiayu HoldingLtd over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Jiayu HoldingLtd's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 60%. This means it has also seen a slide in revenue over the longer-term as revenue is down 61% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 20% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Jiayu HoldingLtd is trading at a fairly similar P/S compared to the industry. 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. There's a 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.

What Does Jiayu HoldingLtd's P/S Mean For Investors?

Jiayu HoldingLtd appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We find it unexpected that Jiayu HoldingLtd trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more 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.

Having said that, be aware Jiayu HoldingLtd is showing 4 warning signs in our investment analysis, you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.