Jiangxi Changyun Co., Ltd.'s (SHSE:600561) Price Is Right But Growth Is Lacking After Shares Rocket 27%

Jiangxi Changyun Co., Ltd. (SHSE:600561) shareholders have had their patience rewarded with a 27% share price jump in the last month. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 7.0% in the last twelve months.

In spite of the firm bounce in price, Jiangxi Changyun may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1x, considering almost half of all companies in the Transportation industry in China have P/S ratios greater than 2.4x and even P/S higher than 5x 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 limited.

View our latest analysis for Jiangxi Changyun

What Does Jiangxi Changyun's Recent Performance Look Like?

Jiangxi Changyun has been doing a decent job lately as it's been growing revenue at a reasonable pace. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Jiangxi Changyun will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Jiangxi Changyun's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Jiangxi Changyun?

The only time you'd be truly comfortable seeing a P/S as low as Jiangxi Changyun's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.0% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 24% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 7.3% shows it's an unpleasant look.

In light of this, it's understandable that Jiangxi Changyun's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Jiangxi Changyun's P/S

Jiangxi Changyun's stock price has surged recently, but its but its P/S still remains modest. 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.

It's no surprise that Jiangxi Changyun maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Jiangxi Changyun with six simple checks on some of these key factors.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.