Investors Appear Satisfied With Wuhan Jingce Electronic Group Co.,Ltd's (SZSE:300567) Prospects As Shares Rocket 31%

Wuhan Jingce Electronic Group Co.,Ltd (SZSE:300567) shareholders are no doubt pleased to see that the share price has bounced 31% in the last month, although it is still struggling to make up recently lost ground. Notwithstanding the latest gain, the annual share price return of 9.8% isn't as impressive.

After such a large jump in price, when almost half of the companies in China's Electronic industry have price-to-sales ratios (or "P/S") below 3.6x, you may consider Wuhan Jingce Electronic GroupLtd as a stock not worth researching with its 7.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Wuhan Jingce Electronic GroupLtd

How Wuhan Jingce Electronic GroupLtd Has Been Performing

While the industry has experienced revenue growth lately, Wuhan Jingce Electronic GroupLtd's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Wuhan Jingce Electronic GroupLtd's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Wuhan Jingce Electronic GroupLtd's to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Still, the latest three year period has seen an excellent 40% overall rise in revenue, in spite of its uninspiring short-term performance. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 49% over the next year. With the industry only predicted to deliver 26%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Wuhan Jingce Electronic GroupLtd's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Shares in Wuhan Jingce Electronic GroupLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look into Wuhan Jingce Electronic GroupLtd shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Wuhan Jingce Electronic GroupLtd you should be aware of.

If you're unsure about the strength of Wuhan Jingce Electronic GroupLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.