Jiangsu Hongdou Industrial Co.,LTD (SHSE:600400) Stocks Shoot Up 27% But Its P/S Still Looks Reasonable

The Jiangsu Hongdou Industrial Co.,LTD (SHSE:600400) share price has done very well over the last month, posting an excellent gain of 27%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 7.0% in the last twelve months.

Since its price has surged higher, given close to half the companies operating in China's Luxury industry have price-to-sales ratios (or "P/S") below 1.5x, you may consider Jiangsu Hongdou IndustrialLTD as a stock to potentially avoid with its 2.8x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Jiangsu Hongdou IndustrialLTD

How Has Jiangsu Hongdou IndustrialLTD Performed Recently?

Jiangsu Hongdou IndustrialLTD could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jiangsu Hongdou IndustrialLTD.

How Is Jiangsu Hongdou IndustrialLTD's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Jiangsu Hongdou IndustrialLTD's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. This isn't what shareholders were looking for as it means they've been left with a 1.8% decline in revenue over the last three years in total. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 27% during the coming year according to the only analyst following the company. With the industry only predicted to deliver 15%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Jiangsu Hongdou IndustrialLTD's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Jiangsu Hongdou IndustrialLTD's P/S

The large bounce in Jiangsu Hongdou IndustrialLTD's shares has lifted the company's P/S handsomely. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Jiangsu Hongdou IndustrialLTD's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Jiangsu Hongdou IndustrialLTD that you should be aware of.

If you're unsure about the strength of Jiangsu Hongdou IndustrialLTD's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.