Grandjoy Holdings Group Co., Ltd. (SZSE:000031) Surges 26% Yet Its Low P/S Is No Reason For Excitement

Grandjoy Holdings Group Co., Ltd. (SZSE:000031) shares have continued their recent momentum with a 26% gain in the last month alone. Looking further back, the 23% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, Grandjoy Holdings Group's price-to-sales (or "P/S") ratio of 0.5x might still make it look like a strong buy right now compared to the wider Real Estate industry in China, where around half of the companies have P/S ratios above 2.6x and even P/S above 7x 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.

See our latest analysis for Grandjoy Holdings Group

What Does Grandjoy Holdings Group's Recent Performance Look Like?

The recent revenue growth at Grandjoy Holdings 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 Grandjoy Holdings Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Grandjoy Holdings Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Grandjoy Holdings Group?

The only time you'd be truly comfortable seeing a P/S as depressed as Grandjoy Holdings Group's is when the company's growth is on track to lag the industry decidedly.

If we review the last year of revenue growth, the company posted a worthy increase of 3.2%. However, this wasn't enough as the latest three year period has seen an unpleasant 15% overall drop in revenue. 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 11% shows it's an unpleasant look.

In light of this, it's understandable that Grandjoy Holdings Group'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 Bottom Line On Grandjoy Holdings Group's P/S

Shares in Grandjoy Holdings Group have risen appreciably however, its P/S is still subdued. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Grandjoy Holdings Group confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected 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. 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for Grandjoy Holdings Group you should be aware of.

If you're unsure about the strength of Grandjoy Holdings 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.