Jinhua Chunguang Technology Co.,Ltd (SHSE:603657) Might Not Be As Mispriced As It Looks After Plunging 26%

The Jinhua Chunguang Technology Co.,Ltd (SHSE:603657) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 29% in that time.

Even after such a large drop in price, Jinhua Chunguang TechnologyLtd may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.9x, considering almost half of all companies in the Consumer Durables industry in China have P/S ratios greater than 1.9x and even P/S higher than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Jinhua Chunguang TechnologyLtd

How Jinhua Chunguang TechnologyLtd Has Been Performing

Jinhua Chunguang TechnologyLtd hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jinhua Chunguang TechnologyLtd.

Is There Any Revenue Growth Forecasted For Jinhua Chunguang TechnologyLtd?

In order to justify its P/S ratio, Jinhua Chunguang TechnologyLtd would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. Even so, admirably revenue has lifted 78% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 16% as estimated by the one analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 11%, which is noticeably less attractive.

With this information, we find it odd that Jinhua Chunguang TechnologyLtd is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Jinhua Chunguang TechnologyLtd's P/S

Jinhua Chunguang TechnologyLtd's P/S has taken a dip along with its share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

To us, it seems Jinhua Chunguang TechnologyLtd currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You need to take note of risks, for example - Jinhua Chunguang TechnologyLtd has 4 warning signs (and 2 which are a bit concerning) we think you should know about.

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.