Shenzhen Jove Enterprise Limited's (SZSE:300814) Shares Climb 28% But Its Business Is Yet to Catch Up

Shenzhen Jove Enterprise Limited (SZSE:300814) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.5% in the last twelve months.

Even after such a large jump in price, it's still not a stretch to say that Shenzhen Jove Enterprise's price-to-sales (or "P/S") ratio of 4.2x right now seems quite "middle-of-the-road" compared to the Electronic industry in China, where the median P/S ratio is around 3.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Shenzhen Jove Enterprise

What Does Shenzhen Jove Enterprise's Recent Performance Look Like?

For instance, Shenzhen Jove Enterprise's receding revenue in recent times would have to be some food for thought. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shenzhen Jove Enterprise's earnings, revenue and cash flow.

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

Shenzhen Jove Enterprise's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with 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 has soured the latest three-year period, which nevertheless managed to deliver a decent 11% overall rise in revenue. 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 the recent medium-term revenue trends against the industry's one-year growth forecast of 26% shows it's noticeably less attractive.

With this information, we find it interesting that Shenzhen Jove Enterprise is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What We Can Learn From Shenzhen Jove Enterprise's P/S?

Shenzhen Jove Enterprise's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Shenzhen Jove Enterprise's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

You need to take note of risks, for example - Shenzhen Jove Enterprise has 4 warning signs (and 1 which is concerning) we think you should know about.

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

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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.