What JinXianDai Information Industry Co.,Ltd.'s (SZSE:300830) 36% Share Price Gain Is Not Telling You

JinXianDai Information Industry Co.,Ltd. (SZSE:300830) shareholders are no doubt pleased to see that the share price has bounced 36% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 38% over that time.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about JinXianDai Information IndustryLtd's P/S ratio of 4.8x, since the median price-to-sales (or "P/S") ratio for the Software industry in China is also close to 5.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for JinXianDai Information IndustryLtd

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

As an illustration, revenue has deteriorated at JinXianDai Information IndustryLtd over the last year, which is not ideal at all. 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?

The only time you'd be comfortable seeing a P/S like JinXianDai Information IndustryLtd's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 8.0% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 12% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Comparing that to the industry, which is predicted to deliver 33% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it interesting that JinXianDai Information IndustryLtd is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From JinXianDai Information IndustryLtd's P/S?

Its shares have lifted substantially and now JinXianDai Information IndustryLtd's 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.

Our examination of JinXianDai Information IndustryLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Before you settle on your opinion, we've discovered 4 warning signs for JinXianDai Information IndustryLtd (2 are significant!) that you should be aware of.

If these risks are making you reconsider your opinion on JinXianDai Information IndustryLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.