Shenzhen Jianyi Decoration Group Co., Ltd.'s (SZSE:002789) Shares Leap 25% Yet They're Still Not Telling The Full Story

Despite an already strong run, Shenzhen Jianyi Decoration Group Co., Ltd. (SZSE:002789) shares have been powering on, with a gain of 25% in the last thirty days. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 8.4% over the last year.

In spite of the firm bounce in price, Shenzhen Jianyi Decoration Group's price-to-sales (or "P/S") ratio of 0.3x might still make it look like a strong buy right now compared to the wider Professional Services industry in China, where around half of the companies have P/S ratios above 3.9x and even P/S above 9x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Shenzhen Jianyi Decoration Group

How Shenzhen Jianyi Decoration Group Has Been Performing

With revenue growth that's exceedingly strong of late, Shenzhen Jianyi Decoration Group has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shenzhen Jianyi Decoration Group's earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

Shenzhen Jianyi Decoration Group's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 62% last year. The latest three year period has also seen an excellent 218% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 28% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it odd that Shenzhen Jianyi Decoration Group is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Shenzhen Jianyi Decoration Group's recent share price jump still sees fails to bring its P/S alongside the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We're very surprised to see Shenzhen Jianyi Decoration Group currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Shenzhen Jianyi Decoration Group that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.