Revenues Not Telling The Story For Jinfa Labi Maternity & Baby Articles Co., Ltd (SZSE:002762) After Shares Rise 33%

Jinfa Labi Maternity & Baby Articles Co., Ltd (SZSE:002762) shareholders are no doubt pleased to see that the share price has bounced 33% in the last month, although it is still struggling to make up recently lost ground. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 3.5% in the last twelve months.

Since its price has surged higher, you could be forgiven for thinking Jinfa Labi Maternity & Baby Articles is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 13.3x, considering almost half the companies in China's Luxury industry have P/S ratios below 1.6x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Jinfa Labi Maternity & Baby Articles

How Jinfa Labi Maternity & Baby Articles Has Been Performing

As an illustration, revenue has deteriorated at Jinfa Labi Maternity & Baby Articles over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for Jinfa Labi Maternity & Baby Articles, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Jinfa Labi Maternity & Baby Articles' Revenue Growth Trending?

Jinfa Labi Maternity & Baby Articles' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 11%. As a result, revenue from three years ago have also fallen 39% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 13% shows it's an unpleasant look.

In light of this, it's alarming that Jinfa Labi Maternity & Baby Articles' P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Jinfa Labi Maternity & Baby Articles' P/S Mean For Investors?

Jinfa Labi Maternity & Baby Articles' P/S has grown nicely over the last month thanks to a handy boost in the 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.

We've established that Jinfa Labi Maternity & Baby Articles currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Jinfa Labi Maternity & Baby Articles (2 are a bit unpleasant!) that you should be aware of before investing here.

If you're unsure about the strength of Jinfa Labi Maternity & Baby Articles' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.