Revenues Tell The Story For Jianglong Shipbuilding Co., Ltd. (SZSE:300589) As Its Stock Soars 36%

Jianglong Shipbuilding Co., Ltd. (SZSE:300589) shareholders would be excited to see that the share price has had a great month, posting a 36% gain and recovering from prior weakness. Notwithstanding the latest gain, the annual share price return of 4.8% isn't as impressive.

Since its price has surged higher, when almost half of the companies in China's Machinery industry have price-to-sales ratios (or "P/S") below 2.8x, you may consider Jianglong Shipbuilding as a stock probably not worth researching with its 3.6x 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 Jianglong Shipbuilding

How Has Jianglong Shipbuilding Performed Recently?

Recent times have been advantageous for Jianglong Shipbuilding as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think Jianglong Shipbuilding's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Jianglong Shipbuilding's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Jianglong Shipbuilding's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 75% last year. Pleasingly, revenue has also lifted 133% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 26% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 23%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Jianglong Shipbuilding's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Jianglong Shipbuilding shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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 look into Jianglong Shipbuilding shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Jianglong Shipbuilding has 1 warning sign we think 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.