Chengdu Jiafaantai Education Technology Co.,Ltd. (SZSE:300559) Stocks Shoot Up 30% But Its P/S Still Looks Reasonable

Chengdu Jiafaantai Education Technology Co.,Ltd. (SZSE:300559) shares have had a really impressive month, gaining 30% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 33%.

After such a large jump in price, given around half the companies in China's Communications industry have price-to-sales ratios (or "P/S") below 5.6x, you may consider Chengdu Jiafaantai Education TechnologyLtd as a stock to avoid entirely with its 11x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Chengdu Jiafaantai Education TechnologyLtd

What Does Chengdu Jiafaantai Education TechnologyLtd's P/S Mean For Shareholders?

Recent times haven't been great for Chengdu Jiafaantai Education TechnologyLtd as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Chengdu Jiafaantai Education TechnologyLtd.

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. Regardless, revenue has managed to lift by a handy 12% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next year should generate growth of 50% as estimated by the three analysts watching the company. With the industry only predicted to deliver 34%, the company is positioned for a stronger revenue result.

With this information, we can see why Chengdu Jiafaantai Education TechnologyLtd is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Chengdu Jiafaantai Education TechnologyLtd's P/S

The strong share price surge has lead to Chengdu Jiafaantai Education TechnologyLtd's P/S soaring as well. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

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. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Chengdu Jiafaantai Education TechnologyLtd has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Chengdu Jiafaantai Education TechnologyLtd, 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.