Optimistic Investors Push Jiumaojiu International Holdings Limited (HKG:9922) Shares Up 28% But Growth Is Lacking

Jiumaojiu International Holdings Limited (HKG:9922) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 5.5% isn't as attractive.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Jiumaojiu International Holdings' P/S ratio of 0.6x, since the median price-to-sales (or "P/S") ratio for the Hospitality industry in Hong Kong is also close to 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

See our latest analysis for Jiumaojiu International Holdings

How Has Jiumaojiu International Holdings Performed Recently?

Recent times haven't been great for Jiumaojiu International Holdings as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Jiumaojiu International Holdings' Revenue Growth Trending?

In order to justify its P/S ratio, Jiumaojiu International Holdings would need to produce growth that's similar to the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Although pleasingly revenue has lifted 45% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 6.5% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 12% per annum, which is noticeably more attractive.

In light of this, it's curious that Jiumaojiu International Holdings' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Jiumaojiu International Holdings' P/S

Its shares have lifted substantially and now Jiumaojiu International Holdings' P/S is back within range of the industry median. 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.

Our look at the analysts forecasts of Jiumaojiu International Holdings' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Jiumaojiu International Holdings, and understanding these should be part of your investment process.

If these risks are making you reconsider your opinion on Jiumaojiu International Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.