Revenues Not Telling The Story For Zhejiang Jinke Tom Culture Industry Co., LTD. (SZSE:300459) After Shares Rise 36%

Zhejiang Jinke Tom Culture Industry Co., LTD. (SZSE:300459) shareholders have had their patience rewarded with a 36% share price jump in the last month. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 8.0% in the last twelve months.

Since its price has surged higher, you could be forgiven for thinking Zhejiang Jinke Tom Culture Industry is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 13.7x, considering almost half the companies in China's Entertainment industry have P/S ratios below 5.6x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Zhejiang Jinke Tom Culture Industry

What Does Zhejiang Jinke Tom Culture Industry's Recent Performance Look Like?

For instance, Zhejiang Jinke Tom Culture Industry's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Zhejiang Jinke Tom Culture Industry will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The High P/S?

Zhejiang Jinke Tom Culture Industry'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, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 16%. As a result, revenue from three years ago have also fallen 31% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 28% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's alarming that Zhejiang Jinke Tom Culture Industry's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does Zhejiang Jinke Tom Culture Industry's P/S Mean For Investors?

Shares in Zhejiang Jinke Tom Culture Industry have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

Our examination of Zhejiang Jinke Tom Culture Industry revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

You always need to take note of risks, for example - Zhejiang Jinke Tom Culture Industry has 1 warning sign we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.