Investors Appear Satisfied With Wuhan Jingce Electronic Group Co.,Ltd's (SZSE:300567) Prospects As Shares Rocket 52%

Wuhan Jingce Electronic Group Co.,Ltd (SZSE:300567) shares have had a really impressive month, gaining 52% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 13% over that time.

Following the firm bounce in price, Wuhan Jingce Electronic GroupLtd may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 8.7x, when you consider almost half of the companies in the Electronic industry in China have P/S ratios under 4x and even P/S lower than 2x aren't out of the ordinary. 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.

See our latest analysis for Wuhan Jingce Electronic GroupLtd

How Has Wuhan Jingce Electronic GroupLtd Performed Recently?

Wuhan Jingce Electronic GroupLtd hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Wuhan Jingce Electronic GroupLtd.

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

In order to justify its P/S ratio, Wuhan Jingce Electronic GroupLtd would need to produce outstanding growth that's well in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 11%. This means it has also seen a slide in revenue over the longer-term as revenue is down 7.4% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 29% as estimated by the eight analysts watching the company. With the industry only predicted to deliver 26%, the company is positioned for a stronger revenue result.

With this information, we can see why Wuhan Jingce Electronic GroupLtd is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Wuhan Jingce Electronic GroupLtd's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

As we suspected, our examination of Wuhan Jingce Electronic GroupLtd's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you take the next step, you should know about the 3 warning signs for Wuhan Jingce Electronic GroupLtd (2 can't be ignored!) that we have uncovered.

If these risks are making you reconsider your opinion on Wuhan Jingce Electronic GroupLtd, 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.