Jiangsu Favored Nanotechnology Co., Ltd (SHSE:688371) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 11% in the last twelve months.

After such a large jump in price, you could be forgiven for thinking Jiangsu Favored Nanotechnology is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 21.6x, considering almost half the companies in China's Chemicals industry have P/S ratios below 2.4x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Jiangsu Favored Nanotechnology

How Jiangsu Favored Nanotechnology Has Been Performing

While the industry has experienced revenue growth lately, Jiangsu Favored Nanotechnology's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

How Is Jiangsu Favored Nanotechnology's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Jiangsu Favored Nanotechnology's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a frustrating 33% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 33% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 199% during the coming year according to the sole analyst following the company. With the industry only predicted to deliver 31%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Jiangsu Favored Nanotechnology's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Shares in Jiangsu Favored Nanotechnology have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

As we suspected, our examination of Jiangsu Favored Nanotechnology's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 2 warning signs for Jiangsu Favored Nanotechnology (1 can't be ignored!) that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.