China Jinmao Holdings Group Limited (HKG:817) Stock Rockets 31% As Investors Are Less Pessimistic Than Expected

China Jinmao Holdings Group Limited (HKG:817) shareholders would be excited to see that the share price has had a great month, posting a 31% gain and recovering from prior weakness. But the last month did very little to improve the 52% share price decline over the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about China Jinmao Holdings Group's P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Real Estate industry in Hong Kong is also close to 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for China Jinmao Holdings Group

What Does China Jinmao Holdings Group's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, China Jinmao Holdings Group's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on China Jinmao Holdings Group.

How Is China Jinmao Holdings Group's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 21% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue growth is heading into negative territory, declining 0.6% each year over the next three years. Meanwhile, the broader industry is forecast to expand by 5.4% each year, which paints a poor picture.

With this in consideration, we think it doesn't make sense that China Jinmao Holdings Group's P/S is closely matching its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Key Takeaway

China Jinmao Holdings Group appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

While China Jinmao Holdings Group's P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for China Jinmao Holdings Group that you should be aware of.

If you're unsure about the strength of China Jinmao Holdings Group'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.