Revenues Not Telling The Story For JPP Holding Company Limited (TWSE:5284) After Shares Rise 27%

JPP Holding Company Limited (TWSE:5284) shareholders have had their patience rewarded with a 27% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 25% is also fairly reasonable.

Following the firm bounce in price, given close to half the companies operating in Taiwan's Electronic industry have price-to-sales ratios (or "P/S") below 1.8x, you may consider JPP Holding as a stock to potentially avoid with its 3.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for JPP Holding

What Does JPP Holding's Recent Performance Look Like?

Recent revenue growth for JPP Holding has been in line with the industry. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. 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 JPP Holding.

Is There Enough Revenue Growth Forecasted For JPP Holding?

The only time you'd be truly comfortable seeing a P/S as high as JPP Holding's is when the company's growth is on track to outshine the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 3.5%. 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 year should generate growth of 16% as estimated by the dual analysts watching the company. With the industry predicted to deliver 20% growth, the company is positioned for a weaker revenue result.

With this information, we find it concerning that JPP Holding is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What We Can Learn From JPP Holding's P/S?

JPP Holding shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Despite analysts forecasting some poorer-than-industry revenue growth figures for JPP Holding, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. At these price levels, investors should remain cautious, particularly if things don't improve.

Plus, you should also learn about these 3 warning signs we've spotted with JPP Holding (including 1 which makes us a bit uncomfortable).

If you're unsure about the strength of JPP Holding'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.