Further Upside For Scienjoy Holding Corporation (NASDAQ:SJ) Shares Could Introduce Price Risks After 26% Bounce

Scienjoy Holding Corporation (NASDAQ:SJ) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 74% share price drop in the last twelve months.

Although its price has surged higher, Scienjoy Holding's price-to-sales (or "P/S") ratio of 0.2x might still make it look like a buy right now compared to the Entertainment industry in the United States, where around half of the companies have P/S ratios above 1.2x and even P/S above 4x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Scienjoy Holding

How Has Scienjoy Holding Performed Recently?

Scienjoy Holding hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Is There Any Revenue Growth Forecasted For Scienjoy Holding?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Scienjoy Holding's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 18%. Even so, admirably revenue has lifted 52% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 23% as estimated by the lone analyst watching the company. With the industry only predicted to deliver 11%, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Scienjoy Holding's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Despite Scienjoy Holding's share price climbing recently, its P/S still lags most other companies. 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.

Scienjoy Holding's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Scienjoy Holding (at least 2 which are potentially serious), and understanding these should be part of your investment process.

If you're unsure about the strength of Scienjoy Holding's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.