Revenues Tell The Story For Jia Yao Holdings Limited (HKG:1626)

When close to half the companies in the Packaging industry in Hong Kong have price-to-sales ratios (or "P/S") below 0.8x, you may consider Jia Yao Holdings Limited (HKG:1626) as a stock to potentially avoid with its 2.3x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Jia Yao Holdings

What Does Jia Yao Holdings' Recent Performance Look Like?

Recent times have been quite advantageous for Jia Yao Holdings as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 Jia Yao Holdings' earnings, revenue and cash flow.

How Is Jia Yao Holdings' Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 40% gain to the company's top line. Pleasingly, revenue has also lifted 85% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 19% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this in consideration, it's not hard to understand why Jia Yao Holdings' P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From Jia Yao Holdings' P/S?

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 established that Jia Yao Holdings maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Jia Yao Holdings that you should be aware of.

If these risks are making you reconsider your opinion on Jia Yao Holdings, 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.