Jiangsu Liba Enterprise Joint-Stock Co., Ltd. (SHSE:603519) Looks Inexpensive After Falling 25% But Perhaps Not Attractive Enough

Jiangsu Liba Enterprise Joint-Stock Co., Ltd. (SHSE:603519) shares have had a horrible month, losing 25% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 18% share price drop.

Since its price has dipped substantially, Jiangsu Liba Enterprise may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.7x, considering almost half of all companies in the Chemicals industry in China have P/S ratios greater than 2.2x and even P/S higher than 5x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Jiangsu Liba Enterprise

What Does Jiangsu Liba Enterprise's Recent Performance Look Like?

The revenue growth achieved at Jiangsu Liba Enterprise over the last year would be more than acceptable for most companies. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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 Jiangsu Liba Enterprise's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Jiangsu Liba Enterprise?

The only time you'd be truly comfortable seeing a P/S as low as Jiangsu Liba Enterprise's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company grew revenue by an impressive 20% last year. Revenue has also lifted 6.1% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Jiangsu Liba Enterprise's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From Jiangsu Liba Enterprise's P/S?

Jiangsu Liba Enterprise's P/S has taken a dip along with its share price. 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.

Our examination of Jiangsu Liba Enterprise confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Jiangsu Liba Enterprise (1 can't be ignored!) that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.