Nanjing OLO Home Furnishing Co.,Ltd (SHSE:603326) Soars 28% But It's A Story Of Risk Vs Reward

Nanjing OLO Home Furnishing Co.,Ltd (SHSE:603326) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 22% over that time.

In spite of the firm bounce in price, Nanjing OLO Home FurnishingLtd's price-to-sales (or "P/S") ratio of 1.3x might still make it look like a buy right now compared to the Consumer Durables industry in China, where around half of the companies have P/S ratios above 1.9x and even P/S above 4x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Nanjing OLO Home FurnishingLtd

What Does Nanjing OLO Home FurnishingLtd's P/S Mean For Shareholders?

Nanjing OLO Home FurnishingLtd's revenue growth of late has been pretty similar to most other companies. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

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

How Is Nanjing OLO Home FurnishingLtd's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Nanjing OLO Home FurnishingLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 4.5%. The solid recent performance means it was also able to grow revenue by 23% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 24% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 12%, which is noticeably less attractive.

In light of this, it's peculiar that Nanjing OLO Home FurnishingLtd's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What Does Nanjing OLO Home FurnishingLtd's P/S Mean For Investors?

The latest share price surge wasn't enough to lift Nanjing OLO Home FurnishingLtd's P/S close to the industry median. 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.

To us, it seems Nanjing OLO Home FurnishingLtd currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Nanjing OLO Home FurnishingLtd that you should be aware of.

If these risks are making you reconsider your opinion on Nanjing OLO Home FurnishingLtd, 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.