Jiangsu Tongguang Electronic Wire & Cable Co., Ltd.'s (SZSE:300265) 30% Price Boost Is Out Of Tune With Revenues

Jiangsu Tongguang Electronic Wire & Cable Co., Ltd. (SZSE:300265) shareholders have had their patience rewarded with a 30% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 56%.

Although its price has surged higher, there still wouldn't be many who think Jiangsu Tongguang Electronic Wire & Cable's price-to-sales (or "P/S") ratio of 2.2x is worth a mention when the median P/S in China's Electrical industry is similar at about 2.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

The end of cancer? These 15 emerging AI stocks are developing tech that will allow early identification of life changing diseases like cancer and Alzheimer's.

See our latest analysis for Jiangsu Tongguang Electronic Wire & Cable

What Does Jiangsu Tongguang Electronic Wire & Cable's Recent Performance Look Like?

For instance, Jiangsu Tongguang Electronic Wire & Cable's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. 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.

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 Tongguang Electronic Wire & Cable's earnings, revenue and cash flow.

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

The only time you'd be comfortable seeing a P/S like Jiangsu Tongguang Electronic Wire & Cable's is when the company's growth is tracking the industry closely.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.8%. Still, the latest three year period has seen an excellent 32% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 27% shows it's noticeably less attractive.

With this information, we find it interesting that Jiangsu Tongguang Electronic Wire & Cable is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Jiangsu Tongguang Electronic Wire & Cable's P/S Mean For Investors?

Jiangsu Tongguang Electronic Wire & Cable's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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've established that Jiangsu Tongguang Electronic Wire & Cable's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Jiangsu Tongguang Electronic Wire & Cable that you should be aware of.

If you're unsure about the strength of Jiangsu Tongguang Electronic Wire & Cable's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.