Investors Appear Satisfied With Jiangsu Guoxin Corp. Ltd.'s (SZSE:002608) Prospects

It's not a stretch to say that Jiangsu Guoxin Corp. Ltd.'s (SZSE:002608) price-to-sales (or "P/S") ratio of 0.9x right now seems quite "middle-of-the-road" for companies in the Electric Utilities industry in China, where the median P/S ratio is around 1.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Jiangsu Guoxin

How Has Jiangsu Guoxin Performed Recently?

Jiangsu Guoxin has been doing a reasonable job lately as its revenue hasn't declined as much as most other companies. Perhaps the market is expecting future revenue performance fall back in line with the poorer industry performance, which has kept the P/S contained. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. But at the very least, you'd be hoping the company doesn't fall back into the pack if your plan is to pick up some stock while it's not in favour.

Want the full picture on analyst estimates for the company? Then our free report on Jiangsu Guoxin will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Jiangsu Guoxin's is when the company's growth is tracking the industry closely.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period has seen an excellent 54% overall rise in revenue, in spite of its uninspiring short-term performance. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Turning to the outlook, the next year should generate growth of 8.4% as estimated by the three analysts watching the company. With the industry predicted to deliver 10% growth , the company is positioned for a comparable revenue result.

In light of this, it's understandable that Jiangsu Guoxin's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

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.

We've seen that Jiangsu Guoxin maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

Before you take the next step, you should know about the 3 warning signs for Jiangsu Guoxin (1 is a bit unpleasant!) that we have uncovered.

If you're unsure about the strength of Jiangsu Guoxin'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.