The Market Doesn't Like What It Sees From Ji Yao Holding Group Co., Ltd.'s (SZSE:300108) Revenues Yet As Shares Tumble 28%

To the annoyance of some shareholders, Ji Yao Holding Group Co., Ltd. (SZSE:300108) shares are down a considerable 28% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 64% loss during that time.

Since its price has dipped substantially, Ji Yao Holding Group's price-to-sales (or "P/S") ratio of 2.1x might make it look like a buy right now compared to the Pharmaceuticals industry in China, where around half of the companies have P/S ratios above 3.3x and even P/S above 7x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Ji Yao Holding Group

How Has Ji Yao Holding Group Performed Recently?

The recent revenue growth at Ji Yao Holding Group would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. Those who are bullish on Ji Yao Holding Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Ji Yao Holding Group's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Ji Yao Holding Group?

The only time you'd be truly comfortable seeing a P/S as low as Ji Yao Holding Group's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a decent 4.2% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 42% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 190% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we understand why Ji Yao Holding Group's P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

Ji Yao Holding Group's P/S has taken a dip along with its share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Ji Yao Holding Group revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Plus, you should also learn about these 3 warning signs we've spotted with Ji Yao Holding Group.

If you're unsure about the strength of Ji Yao Holding Group'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.