Zhejiang Jindun Fans Co., Ltd's (SZSE:300411) 33% Price Boost Is Out Of Tune With Revenues

Despite an already strong run, Zhejiang Jindun Fans Co., Ltd (SZSE:300411) shares have been powering on, with a gain of 33% in the last thirty days. The last month tops off a massive increase of 133% in the last year.

Since its price has surged higher, given around half the companies in China's Machinery industry have price-to-sales ratios (or "P/S") below 2.6x, you may consider Zhejiang Jindun Fans as a stock to avoid entirely with its 13.8x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Zhejiang Jindun Fans

How Zhejiang Jindun Fans Has Been Performing

As an illustration, revenue has deteriorated at Zhejiang Jindun Fans over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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.

How Is Zhejiang Jindun Fans' Revenue Growth Trending?

Zhejiang Jindun Fans' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

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 2.2%. As a result, revenue from three years ago have also fallen 34% overall. 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 24% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we find it worrying that Zhejiang Jindun Fans' P/S exceeds that of its industry peers. 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.

What Does Zhejiang Jindun Fans' P/S Mean For Investors?

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

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. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 1 warning sign for Zhejiang Jindun Fans that you need to take into consideration.

If these risks are making you reconsider your opinion on Zhejiang Jindun Fans, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.