Jiangsu Newamstar Packaging Machinery Co.,Ltd's (SZSE:300509) Price Is Right But Growth Is Lacking After Shares Rocket 37%

Jiangsu Newamstar Packaging Machinery Co.,Ltd (SZSE:300509) shares have continued their recent momentum with a 37% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 27% in the last year.

Even after such a large jump in price, Jiangsu Newamstar Packaging MachineryLtd may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.7x, since almost half of all companies in the Machinery industry in China have P/S ratios greater than 3.3x and even P/S higher than 6x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Jiangsu Newamstar Packaging MachineryLtd

What Does Jiangsu Newamstar Packaging MachineryLtd's P/S Mean For Shareholders?

The revenue growth achieved at Jiangsu Newamstar Packaging MachineryLtd over the last year would be more than acceptable for most companies. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Jiangsu Newamstar Packaging MachineryLtd?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Jiangsu Newamstar Packaging MachineryLtd's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. This was backed up an excellent period prior to see revenue up by 42% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 23% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that Jiangsu Newamstar Packaging MachineryLtd's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What Does Jiangsu Newamstar Packaging MachineryLtd's P/S Mean For Investors?

Despite Jiangsu Newamstar Packaging MachineryLtd's share price climbing recently, its P/S still lags most other companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

In line with expectations, Jiangsu Newamstar Packaging MachineryLtd maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Jiangsu Newamstar Packaging MachineryLtd (1 is concerning!) that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.