There's Reason For Concern Over Nanjing Central Emporium (Group) Stocks Co., Ltd.'s (SHSE:600280) Massive 26% Price Jump

Despite an already strong run, Nanjing Central Emporium (Group) Stocks Co., Ltd. (SHSE:600280) shares have been powering on, with a gain of 26% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 3.3% isn't as impressive.

Even after such a large jump in price, there still wouldn't be many who think Nanjing Central Emporium (Group) Stocks' price-to-sales (or "P/S") ratio of 1.7x is worth a mention when it essentially matches the median P/S in China's Multiline Retail industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Nanjing Central Emporium (Group) Stocks

What Does Nanjing Central Emporium (Group) Stocks' Recent Performance Look Like?

Revenue has risen at a steady rate over the last year for Nanjing Central Emporium (Group) Stocks, which is generally not a bad outcome. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. 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 not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Nanjing Central Emporium (Group) Stocks will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Nanjing Central Emporium (Group) Stocks?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Nanjing Central Emporium (Group) Stocks' to be considered reasonable.

Retrospectively, the last year delivered a decent 5.7% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 33% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 14% shows it's an unpleasant look.

With this information, we find it concerning that Nanjing Central Emporium (Group) Stocks is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Nanjing Central Emporium (Group) Stocks' P/S?

Its shares have lifted substantially and now Nanjing Central Emporium (Group) Stocks' P/S is back within range of the industry median. 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.

We find it unexpected that Nanjing Central Emporium (Group) Stocks trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Nanjing Central Emporium (Group) Stocks that you need to be mindful of.

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.