Optimistic Investors Push Jonjee Hi-Tech Industrial and Commercial Holding Co.,Ltd (SHSE:600872) Shares Up 33% But Growth Is Lacking

Jonjee Hi-Tech Industrial and Commercial Holding Co.,Ltd (SHSE:600872) shares have had a really impressive month, gaining 33% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 32% over that time.

Following the firm bounce in price, you could be forgiven for thinking Jonjee Hi-Tech Industrial and Commercial HoldingLtd is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.5x, considering almost half the companies in China's Food industry have P/S ratios below 1.5x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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

What Does Jonjee Hi-Tech Industrial and Commercial HoldingLtd's P/S Mean For Shareholders?

Jonjee Hi-Tech Industrial and Commercial HoldingLtd hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jonjee Hi-Tech Industrial and Commercial HoldingLtd.

What Are Revenue Growth Metrics Telling Us About The High P/S?

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 4.5%. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 15% during the coming year according to the analysts following the company. With the industry predicted to deliver 16% growth , the company is positioned for a comparable revenue result.

With this information, we find it interesting that Jonjee Hi-Tech Industrial and Commercial HoldingLtd is trading at a high P/S compared to the industry. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

What We Can Learn From Jonjee Hi-Tech Industrial and Commercial HoldingLtd's P/S?

Jonjee Hi-Tech Industrial and Commercial HoldingLtd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that Jonjee Hi-Tech Industrial and Commercial HoldingLtd currently trades on a higher than expected P/S. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Jonjee Hi-Tech Industrial and Commercial HoldingLtd (2 make us uncomfortable!) that you should be aware of before investing here.

If you're unsure about the strength of Jonjee Hi-Tech Industrial and Commercial HoldingLtd's 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.