Stock Analysis
Jiugui Liquor Co., Ltd.'s (SZSE:000799) Stock Retreats 26% But Revenues Haven't Escaped The Attention Of Investors
Jiugui Liquor Co., Ltd. (SZSE:000799) shares have had a horrible month, losing 26% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 34% in that time.
Even after such a large drop in price, you could still be forgiven for thinking Jiugui Liquor is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 8x, considering almost half the companies in China's Beverage industry have P/S ratios below 4.3x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.
See our latest analysis for Jiugui Liquor
How Has Jiugui Liquor Performed Recently?
Jiugui Liquor 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. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.
Keen to find out how analysts think Jiugui Liquor's future stacks up against the industry? In that case, our free report is a great place to start.How Is Jiugui Liquor's Revenue Growth Trending?
In order to justify its P/S ratio, Jiugui Liquor would need to produce outstanding growth that's well in excess of the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 31%. The last three years don't look nice either as the company has shrunk revenue by 44% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Turning to the outlook, the next three years should generate growth of 32% per year as estimated by the ten analysts watching the company. That's shaping up to be materially higher than the 12% per year growth forecast for the broader industry.
With this information, we can see why Jiugui Liquor is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
What Does Jiugui Liquor's P/S Mean For Investors?
Even after such a strong price drop, Jiugui Liquor's P/S still exceeds the industry median significantly. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
Our look into Jiugui Liquor shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.
Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Jiugui Liquor (2 are a bit unpleasant) you should be aware of.
If these risks are making you reconsider your opinion on Jiugui Liquor, 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.
About SZSE:000799
Jiugui Liquor
Produces and sells liquor series products in China and internationally.