Revenues Tell The Story For Jiangyin Zhongnan Heavy Industries Co.,Ltd (SZSE:002445)

When you see that almost half of the companies in the Metals and Mining industry in China have price-to-sales ratios (or "P/S") below 1.4x, Jiangyin Zhongnan Heavy Industries Co.,Ltd (SZSE:002445) looks to be giving off strong sell signals with its 7.3x 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

How Jiangyin Zhongnan Heavy IndustriesLtd Has Been Performing

Jiangyin Zhongnan Heavy IndustriesLtd has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the reasonable 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?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Jiangyin Zhongnan Heavy IndustriesLtd's to be considered reasonable.

Retrospectively, the last year delivered a decent 6.7% gain to the company's revenues. Pleasingly, revenue has also lifted 87% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 13% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this in consideration, it's not hard to understand why Jiangyin Zhongnan Heavy IndustriesLtd's P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Jiangyin Zhongnan Heavy IndustriesLtd revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Jiangyin Zhongnan Heavy IndustriesLtd.

If these risks are making you reconsider your opinion on Jiangyin Zhongnan Heavy IndustriesLtd, 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.