Zhejiang Juli Culture Development Co.,Ltd.'s (SZSE:002247) Share Price Boosted 38% But Its Business Prospects Need A Lift Too

Zhejiang Juli Culture Development Co.,Ltd. (SZSE:002247) shareholders have had their patience rewarded with a 38% share price jump in the last month. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Although its price has surged higher, Zhejiang Juli Culture DevelopmentLtd's price-to-sales (or "P/S") ratio of 1.9x might still make it look like a strong buy right now compared to the wider Entertainment industry in China, where around half of the companies have P/S ratios above 6.3x and even P/S above 13x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for Zhejiang Juli Culture DevelopmentLtd

What Does Zhejiang Juli Culture DevelopmentLtd's Recent Performance Look Like?

Revenue has risen at a steady rate over the last year for Zhejiang Juli Culture DevelopmentLtd, which is generally not a bad outcome. One possibility is that the P/S ratio is low because investors think this good 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 Zhejiang Juli Culture DevelopmentLtd's earnings, revenue and cash flow.

How Is Zhejiang Juli Culture DevelopmentLtd's Revenue Growth Trending?

Zhejiang Juli Culture DevelopmentLtd's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 3.2%. Still, lamentably revenue has fallen 21% in aggregate from three years ago, which is disappointing. 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 28% shows it's an unpleasant look.

In light of this, it's understandable that Zhejiang Juli Culture DevelopmentLtd's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Key Takeaway

Zhejiang Juli Culture DevelopmentLtd's recent share price jump still sees fails to bring its P/S alongside the industry median. 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 Zhejiang Juli Culture DevelopmentLtd revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Having said that, be aware Zhejiang Juli Culture DevelopmentLtd is showing 1 warning sign in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.