The Nanjing Central Emporium (Group) Stocks Co., Ltd. (SHSE:600280) share price has done very well over the last month, posting an excellent gain of 33%. Taking a wider view, although not as strong as the last month, the full year gain of 24% is also fairly reasonable.

Although its price has surged higher, there still wouldn't be many who think Nanjing Central Emporium (Group) Stocks' price-to-sales (or "P/S") ratio of 2x is worth a mention when the median P/S in China's Multiline Retail industry is similar at about 1.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Nanjing Central Emporium (Group) Stocks Has Been Performing

Nanjing Central Emporium (Group) Stocks 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 not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.

Is There Some Revenue Growth Forecasted For Nanjing Central Emporium (Group) Stocks?

The only time you'd be comfortable seeing a P/S like Nanjing Central Emporium (Group) Stocks' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 5.7% gain to the company's revenues. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 33% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 14% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Nanjing Central Emporium (Group) Stocks is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What We Can Learn From Nanjing Central Emporium (Group) Stocks' P/S?

Nanjing Central Emporium (Group) Stocks' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

The fact that Nanjing Central Emporium (Group) Stocks currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Having said that, be aware Nanjing Central Emporium (Group) Stocks is showing 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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