Chengdu Jiafaantai Education Technology Co.,Ltd. (SZSE:300559) Stocks Shoot Up 27% But Its P/S Still Looks Reasonable

Despite an already strong run, Chengdu Jiafaantai Education Technology Co.,Ltd. (SZSE:300559) shares have been powering on, with a gain of 27% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 18% over that time.

Following the firm bounce in price, Chengdu Jiafaantai Education TechnologyLtd's price-to-sales (or "P/S") ratio of 10.7x might make it look like a strong sell right now compared to other companies in the Communications industry in China, where around half of the companies have P/S ratios below 5.4x and even P/S below 2x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for Chengdu Jiafaantai Education TechnologyLtd

How Chengdu Jiafaantai Education TechnologyLtd Has Been Performing

Recent times haven't been great for Chengdu Jiafaantai Education TechnologyLtd as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Chengdu Jiafaantai Education TechnologyLtd's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Chengdu Jiafaantai Education TechnologyLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Chengdu Jiafaantai Education TechnologyLtd would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period was better as it's delivered a decent 12% overall rise in revenue. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 60% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 38%, which is noticeably less attractive.

In light of this, it's understandable that Chengdu Jiafaantai Education TechnologyLtd's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The strong share price surge has lead to Chengdu Jiafaantai Education TechnologyLtd's P/S soaring as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Chengdu Jiafaantai Education TechnologyLtd's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Chengdu Jiafaantai Education TechnologyLtd is showing 4 warning signs in our investment analysis, you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.