Investors Still Waiting For A Pull Back In JILIN JINGUAN ELECTRIC Co.,Ltd (SZSE:300510)

When close to half the companies in the Electrical industry in China have price-to-sales ratios (or "P/S") below 1.9x, you may consider JILIN JINGUAN ELECTRIC Co.,Ltd (SZSE:300510) as a stock to potentially avoid with its 2.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for JILIN JINGUAN ELECTRICLtd

What Does JILIN JINGUAN ELECTRICLtd's P/S Mean For Shareholders?

Recent times have been advantageous for JILIN JINGUAN ELECTRICLtd as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on JILIN JINGUAN ELECTRICLtd will help you uncover what's on the horizon.

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

In order to justify its P/S ratio, JILIN JINGUAN ELECTRICLtd would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a decent 9.4% gain to the company's revenues. The latest three year period has also seen an excellent 37% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 229% as estimated by the only analyst watching the company. That's shaping up to be materially higher than the 24% growth forecast for the broader industry.

With this information, we can see why JILIN JINGUAN ELECTRICLtd is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On JILIN JINGUAN ELECTRICLtd's P/S

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.

As we suspected, our examination of JILIN JINGUAN ELECTRICLtd's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for JILIN JINGUAN ELECTRICLtd that you need to be mindful of.

If these risks are making you reconsider your opinion on JILIN JINGUAN ELECTRICLtd, 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.