Juneyao Airlines Co., Ltd's (SHSE:603885) 30% Jump Shows Its Popularity With Investors

Juneyao Airlines Co., Ltd (SHSE:603885) shares have had a really impressive month, gaining 30% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 4.8% in the last twelve months.

Since its price has surged higher, you could be forgiven for thinking Juneyao Airlines is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.4x, considering almost half the companies in China's Airlines industry have P/S ratios below 0.7x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

See our latest analysis for Juneyao Airlines

What Does Juneyao Airlines' P/S Mean For Shareholders?

Juneyao Airlines certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Juneyao Airlines' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 54%. The strong recent performance means it was also able to grow revenue by 81% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 15% over the next year. With the industry only predicted to deliver 11%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Juneyao Airlines' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Juneyao Airlines' P/S is on the rise since its shares have risen strongly. 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.

As we suspected, our examination of Juneyao Airlines' 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. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Juneyao Airlines (1 is a bit concerning!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Juneyao Airlines, 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.