Jinpu Landscape Architecture Co.,Ltd. (SZSE:301098) Looks Inexpensive But Perhaps Not Attractive Enough

Jinpu Landscape Architecture Co.,Ltd.'s (SZSE:301098) price-to-sales (or "P/S") ratio of 1.5x might make it look like a buy right now compared to the Commercial Services industry in China, where around half of the companies have P/S ratios above 3.4x and even P/S above 6x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Jinpu Landscape ArchitectureLtd

What Does Jinpu Landscape ArchitectureLtd's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Jinpu Landscape ArchitectureLtd over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling 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 Jinpu Landscape ArchitectureLtd will help you shine a light on its historical performance.

How Is Jinpu Landscape ArchitectureLtd's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Jinpu Landscape ArchitectureLtd's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 3.6%. As a result, revenue from three years ago have also fallen 3.6% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 35% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why Jinpu Landscape ArchitectureLtd's P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Final Word

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 Jinpu Landscape ArchitectureLtd revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Jinpu Landscape ArchitectureLtd is showing 4 warning signs in our investment analysis, and 3 of those are concerning.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.