There's Reason For Concern Over Jinfa Labi Maternity & Baby Articles Co., Ltd's (SZSE:002762) Massive 34% Price Jump

Despite an already strong run, Jinfa Labi Maternity & Baby Articles Co., Ltd (SZSE:002762) shares have been powering on, with a gain of 34% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 15% in the last twelve months.

Since its price has surged higher, given around half the companies in China's Luxury industry have price-to-sales ratios (or "P/S") below 1.6x, you may consider Jinfa Labi Maternity & Baby Articles as a stock to avoid entirely with its 14.1x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Jinfa Labi Maternity & Baby Articles

How Has Jinfa Labi Maternity & Baby Articles Performed Recently?

For example, consider that Jinfa Labi Maternity & Baby Articles' financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Jinfa Labi Maternity & Baby Articles will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Jinfa Labi Maternity & Baby Articles?

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 21%. This means it has also seen a slide in revenue over the longer-term as revenue is down 45% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 14% shows it's an unpleasant look.

With this in mind, we find it worrying that Jinfa Labi Maternity & Baby Articles' P/S exceeds that of its industry peers. 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. 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.

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 recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Plus, you should also learn about these 2 warning signs we've spotted with Jinfa Labi Maternity & Baby Articles.

If these risks are making you reconsider your opinion on Jinfa Labi Maternity & Baby Articles, 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.