Getting In Cheap On JD Logistics, Inc. (HKG:2618) Might Be Difficult

Explore JD Logistics's Fair Values from the Community and select yours

With a median price-to-sales (or "P/S") ratio of close to 0.3x in the Logistics industry in Hong Kong, you could be forgiven for feeling indifferent about JD Logistics, Inc.'s (HKG:2618) P/S ratio of 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for JD Logistics

What Does JD Logistics' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, JD Logistics has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on JD Logistics.

What Are Revenue Growth Metrics Telling Us About The P/S?

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

Retrospectively, the last year delivered a decent 9.1% gain to the company's revenues. The latest three year period has also seen an excellent 71% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 9.4% per year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 8.7% each year, which is not materially different.

With this information, we can see why JD Logistics is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On JD Logistics' P/S

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

A JD Logistics' P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Logistics industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for JD Logistics with six simple checks.

If these risks are making you reconsider your opinion on JD Logistics, 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.