There's Reason For Concern Over Shenzhen Jiang&Associates Creative Design Co., Ltd.'s (SZSE:300668) Massive 50% Price Jump

Shenzhen Jiang&Associates Creative Design Co., Ltd. (SZSE:300668) shareholders have had their patience rewarded with a 50% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 16% is also fairly reasonable.

In spite of the firm bounce in price, it's still not a stretch to say that Shenzhen Jiang&Associates Creative Design's price-to-sales (or "P/S") ratio of 3.9x right now seems quite "middle-of-the-road" compared to the Consumer Services industry in China, where the median P/S ratio is around 4.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Shenzhen Jiang&Associates Creative Design

What Does Shenzhen Jiang&Associates Creative Design's Recent Performance Look Like?

The revenue growth achieved at Shenzhen Jiang&Associates Creative Design over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shenzhen Jiang&Associates Creative Design's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Shenzhen Jiang&Associates Creative Design?

Shenzhen Jiang&Associates Creative Design's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 25%. The latest three year period has also seen an excellent 103% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 35% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Shenzhen Jiang&Associates Creative Design's P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

Shenzhen Jiang&Associates Creative Design's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Shenzhen Jiang&Associates Creative Design's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Shenzhen Jiang&Associates Creative Design (2 don't sit too well with us!) that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.