What Jonjee Hi-Tech Industrial and Commercial Holding Co.,Ltd's (SHSE:600872) P/S Is Not Telling You

Jonjee Hi-Tech Industrial and Commercial Holding Co.,Ltd's (SHSE:600872) price-to-sales (or "P/S") ratio of 3.6x may not look like an appealing investment opportunity when you consider close to half the companies in the Food industry in China have P/S ratios below 1.7x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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

How Jonjee Hi-Tech Industrial and Commercial HoldingLtd Has Been Performing

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. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Keen to find out how analysts think Jonjee Hi-Tech Industrial and Commercial HoldingLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Jonjee Hi-Tech Industrial and Commercial HoldingLtd would need to produce impressive growth in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.7%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 7.8% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 11% as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 16%, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that Jonjee Hi-Tech Industrial and Commercial HoldingLtd's P/S is outpacing its industry peers. 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 Key Takeaway

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.

It comes as a surprise to see Jonjee Hi-Tech Industrial and Commercial HoldingLtd trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Jonjee Hi-Tech Industrial and Commercial HoldingLtd that you need to be mindful of.

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.

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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.