Jiangyin Zhongnan Heavy Industries Co.,Ltd (SZSE:002445) Stocks Shoot Up 39% But Its P/S Still Looks Reasonable

Jiangyin Zhongnan Heavy Industries Co.,Ltd (SZSE:002445) shareholders have had their patience rewarded with a 39% share price jump in the last month. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Since its price has surged higher, given around half the companies in China's Metals and Mining industry have price-to-sales ratios (or "P/S") below 1.4x, you may consider Jiangyin Zhongnan Heavy IndustriesLtd as a stock to avoid entirely with its 6.6x P/S ratio. 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.

Check out our latest analysis for Jiangyin Zhongnan Heavy IndustriesLtd

What Does Jiangyin Zhongnan Heavy IndustriesLtd's Recent Performance Look Like?

Revenue has risen firmly for Jiangyin Zhongnan Heavy IndustriesLtd recently, which is pleasing to see. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 Jiangyin Zhongnan Heavy IndustriesLtd's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Jiangyin Zhongnan Heavy IndustriesLtd?

Jiangyin Zhongnan Heavy IndustriesLtd'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.

Taking a look back first, we see that the company grew revenue by an impressive 22% last year. The strong recent performance means it was also able to grow revenue by 91% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 13% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Jiangyin Zhongnan Heavy IndustriesLtd's P/S sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What Does Jiangyin Zhongnan Heavy IndustriesLtd's P/S Mean For Investors?

Jiangyin Zhongnan Heavy IndustriesLtd's P/S has grown nicely over the last month thanks to a handy boost in the share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It's no surprise that Jiangyin Zhongnan Heavy IndustriesLtd can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for Jiangyin Zhongnan Heavy IndustriesLtd that you should be aware of.

If you're unsure about the strength of Jiangyin Zhongnan Heavy IndustriesLtd'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.