Optimistic Investors Push Zhejiang Jindun Fans Co., Ltd (SZSE:300411) Shares Up 29% But Growth Is Lacking

Zhejiang Jindun Fans Co., Ltd (SZSE:300411) shares have continued their recent momentum with a 29% gain in the last month alone. The last month tops off a massive increase of 134% in the last year.

Following the firm bounce in price, you could be forgiven for thinking Zhejiang Jindun Fans is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 13.7x, considering almost half the companies in China's Machinery industry have P/S ratios below 3.2x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Zhejiang Jindun Fans

How Has Zhejiang Jindun Fans Performed Recently?

Revenue has risen firmly for Zhejiang Jindun Fans recently, which is pleasing to see. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Zhejiang Jindun Fans?

In order to justify its P/S ratio, Zhejiang Jindun Fans would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 9.7%. However, this wasn't enough as the latest three year period has seen an unpleasant 26% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 25% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's alarming that Zhejiang Jindun Fans' P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Zhejiang Jindun Fans' P/S

The strong share price surge has lead to Zhejiang Jindun Fans' P/S soaring as well. 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.

Our examination of Zhejiang Jindun Fans revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Zhejiang Jindun Fans (1 is a bit unpleasant) 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.