Jonjee Hi-Tech Industrial and Commercial Holding Co.,Ltd's (SHSE:600872) 25% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

To the annoyance of some shareholders, Jonjee Hi-Tech Industrial and Commercial Holding Co.,Ltd (SHSE:600872) shares are down a considerable 25% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 49% share price drop.

Although its price has dipped substantially, given close to half the companies operating in China's Food industry have price-to-sales ratios (or "P/S") below 1.4x, you may still consider Jonjee Hi-Tech Industrial and Commercial HoldingLtd as a stock to potentially avoid with its 2.7x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Jonjee Hi-Tech Industrial and Commercial HoldingLtd

How Has Jonjee Hi-Tech Industrial and Commercial HoldingLtd Performed Recently?

Jonjee Hi-Tech Industrial and Commercial HoldingLtd could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Jonjee Hi-Tech Industrial and Commercial HoldingLtd will help you uncover what's on the horizon.

How Is Jonjee Hi-Tech Industrial and Commercial HoldingLtd's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Jonjee Hi-Tech Industrial and Commercial HoldingLtd's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.9%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next year should generate growth of 13% as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 17%, which is noticeably more attractive.

In light of this, it's alarming that Jonjee Hi-Tech Industrial and Commercial HoldingLtd's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Jonjee Hi-Tech Industrial and Commercial HoldingLtd's P/S

Jonjee Hi-Tech Industrial and Commercial HoldingLtd's P/S remain high even after its stock plunged. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Jonjee Hi-Tech Industrial and Commercial HoldingLtd, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You need to take note of risks, for example - Jonjee Hi-Tech Industrial and Commercial HoldingLtd has 3 warning signs (and 2 which shouldn't be ignored) 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.

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