China Jo-Jo Drugstores, Inc. (NASDAQ:CJJD) Stocks Shoot Up 32% But Its P/S Still Looks Reasonable

China Jo-Jo Drugstores, Inc. (NASDAQ:CJJD) shareholders are no doubt pleased to see that the share price has bounced 32% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 43% over that time.

Even after such a large jump in price, there still wouldn't be many who think China Jo-Jo Drugstores' price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in the United States' Consumer Retailing industry is similar at about 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for China Jo-Jo Drugstores

How China Jo-Jo Drugstores Has Been Performing

China Jo-Jo Drugstores has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on China Jo-Jo Drugstores will help you shine a light on its historical performance.

How Is China Jo-Jo Drugstores' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like China Jo-Jo Drugstores' to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 3.8%. The latest three year period has also seen a 16% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 4.8% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this in consideration, it's clear to see why China Jo-Jo Drugstores' P/S matches up closely to its industry peers. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

What Does China Jo-Jo Drugstores' P/S Mean For Investors?

China Jo-Jo Drugstores' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we've seen, China Jo-Jo Drugstores' three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Having said that, be aware China Jo-Jo Drugstores is showing 4 warning signs in our investment analysis, and 3 of those are significant.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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.