The Market Lifts Jiangmen Kanhoo Industry Co., Ltd (SZSE:300340) Shares 26% But It Can Do More

Jiangmen Kanhoo Industry Co., Ltd (SZSE:300340) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 48% in the last twelve months.

In spite of the firm bounce in price, Jiangmen Kanhoo Industry's price-to-sales (or "P/S") ratio of 0.6x might still make it look like a buy right now compared to the Chemicals industry in China, where around half of the companies have P/S ratios above 1.9x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Jiangmen Kanhoo Industry

How Jiangmen Kanhoo Industry Has Been Performing

We'd have to say that with no tangible growth over the last year, Jiangmen Kanhoo Industry's revenue has been unimpressive. It might be that many expect the uninspiring revenue performance to worsen, which has repressed the P/S. If not, then existing shareholders may be feeling optimistic about the future direction 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 Jiangmen Kanhoo Industry's earnings, revenue and cash flow.

How Is Jiangmen Kanhoo Industry's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Jiangmen Kanhoo Industry's to be considered reasonable.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. However, a few strong years before that means that it was still able to grow revenue by an impressive 110% in total over the last three years. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

When compared to the industry's one-year growth forecast of 25%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it odd that Jiangmen Kanhoo Industry is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Jiangmen Kanhoo Industry's P/S

Despite Jiangmen Kanhoo Industry's share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We're very surprised to see Jiangmen Kanhoo Industry currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Jiangmen Kanhoo Industry (1 is significant) you should be aware of.

If these risks are making you reconsider your opinion on Jiangmen Kanhoo Industry, 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.