Even With A 39% Surge, Cautious Investors Are Not Rewarding J-Long Group Limited's (NASDAQ:JL) Performance Completely

J-Long Group Limited (NASDAQ:JL) shareholders are no doubt pleased to see that the share price has bounced 39% in the last month, although it is still struggling to make up recently lost ground. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Although its price has surged higher, there still wouldn't be many who think J-Long Group's price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in the United States' Retail Distributors industry is similar at about 0.7x. 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 J-Long Group

How Has J-Long Group Performed Recently?

For example, consider that J-Long Group's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for J-Long Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is J-Long Group's Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 26%. 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. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is only predicted to deliver 2.3% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it interesting that J-Long Group is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

What Does J-Long Group's P/S Mean For Investors?

Its shares have lifted substantially and now J-Long Group's P/S is back within range of the industry median. 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.

We've established that J-Long Group currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you take the next step, you should know about the 5 warning signs for J-Long Group (3 are a bit unpleasant!) that we have uncovered.

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.

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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.