Jilin Yatai (Group) Co., Ltd. (SHSE:600881) Stock Rockets 29% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, Jilin Yatai (Group) Co., Ltd. (SHSE:600881) shares have been powering on, with a gain of 29% in the last thirty days. Looking further back, the 20% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Jilin Yatai (Group)'s P/S ratio of 1.3x, since the median price-to-sales (or "P/S") ratio for the Basic Materials industry in China is also close to 1.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Jilin Yatai (Group)

What Does Jilin Yatai (Group)'s P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Jilin Yatai (Group) over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Jilin Yatai (Group) will help you shine a light on its historical performance.

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

Jilin Yatai (Group)'s P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with 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 35%. The last three years don't look nice either as the company has shrunk revenue by 71% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 11% shows it's an unpleasant look.

With this in mind, we find it worrying that Jilin Yatai (Group)'s P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Bottom Line On Jilin Yatai (Group)'s P/S

Jilin Yatai (Group) appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

We find it unexpected that Jilin Yatai (Group) trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Having said that, be aware Jilin Yatai (Group) is showing 2 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Jilin Yatai (Group), 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.