JinXianDai Information Industry Co.,Ltd. (SZSE:300830) Stock Rockets 34% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, JinXianDai Information Industry Co.,Ltd. (SZSE:300830) shares have been powering on, with a gain of 34% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 13% in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think JinXianDai Information IndustryLtd's price-to-sales (or "P/S") ratio of 6.9x is worth a mention when the median P/S in China's Software industry is similar at about 5.8x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for JinXianDai Information IndustryLtd

What Does JinXianDai Information IndustryLtd's Recent Performance Look Like?

For instance, JinXianDai Information IndustryLtd's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For JinXianDai Information IndustryLtd?

There's an inherent assumption that a company should be matching the industry for P/S ratios like JinXianDai Information IndustryLtd's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 25% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 5.6% in total over the last three years. 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 27% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we find it worrying that JinXianDai Information IndustryLtd's P/S exceeds that of its industry peers. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Final Word

JinXianDai Information IndustryLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

We find it unexpected that JinXianDai Information IndustryLtd 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. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 4 warning signs for JinXianDai Information IndustryLtd (1 is a bit concerning!) that you should be aware of.

If you're unsure about the strength of JinXianDai Information IndustryLtd'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.