Jilin Quanyangquan Co., Ltd.'s (SHSE:600189) Shares May Have Run Too Fast Too Soon

When close to half the companies in the Forestry industry in China have price-to-sales ratios (or "P/S") below 1.6x, you may consider Jilin Quanyangquan Co., Ltd. (SHSE:600189) as a stock to avoid entirely with its 4.6x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Jilin Quanyangquan

What Does Jilin Quanyangquan's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Jilin Quanyangquan over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be quite nervous about the viability 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 Jilin Quanyangquan's earnings, revenue and cash flow.

How Is Jilin Quanyangquan's Revenue Growth Trending?

Jilin Quanyangquan's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 16%. As a result, revenue from three years ago have also fallen 36% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 16% shows it's an unpleasant look.

With this information, we find it concerning that Jilin Quanyangquan is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Final Word

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Jilin Quanyangquan revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Jilin Quanyangquan with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Jilin Quanyangquan'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.