Zhejiang Ming Jewelry Co., Ltd. (SZSE:002574) Surges 36% Yet Its Low P/S Is No Reason For Excitement

Zhejiang Ming Jewelry Co., Ltd. (SZSE:002574) shares have had a really impressive month, gaining 36% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 7.8% isn't as impressive.

In spite of the firm bounce in price, Zhejiang Ming Jewelry's price-to-sales (or "P/S") ratio of 0.8x might still make it look like a buy right now compared to the Luxury industry in China, where around half of the companies have P/S ratios above 1.6x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Zhejiang Ming Jewelry

How Has Zhejiang Ming Jewelry Performed Recently?

Revenue has risen firmly for Zhejiang Ming Jewelry recently, which is pleasing to see. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If that doesn't eventuate, then existing shareholders have reason to be 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 Zhejiang Ming Jewelry will help you shine a light on its historical performance.

How Is Zhejiang Ming Jewelry's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Zhejiang Ming Jewelry's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a decent 8.0% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 25% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 13% shows it's noticeably less attractive.

With this in consideration, it's easy to understand why Zhejiang Ming Jewelry's P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What Does Zhejiang Ming Jewelry's P/S Mean For Investors?

Zhejiang Ming Jewelry's stock price has surged recently, but its but its P/S still remains modest. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Zhejiang Ming Jewelry confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Zhejiang Ming Jewelry you should know about.

If you're unsure about the strength of Zhejiang Ming Jewelry'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.