Shanghai Jinjiang International Travel Co., Ltd. (SHSE:900929) shares have continued their recent momentum with a 25% gain in the last month alone. Unfortunately, despite the strong performance over the last month, the full year gain of 8.2% isn't as attractive.

Although its price has surged higher, considering about half the companies operating in China's Hospitality industry have price-to-sales ratios (or "P/S") above 5.9x, you may still consider Shanghai Jinjiang International Travel as an great investment opportunity with its 1.6x P/S ratio. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

What Does Shanghai Jinjiang International Travel's Recent Performance Look Like?

Recent times have been quite advantageous for Shanghai Jinjiang International Travel as its revenue has been rising very briskly. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Shanghai Jinjiang International Travel will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

How Is Shanghai Jinjiang International Travel's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Shanghai Jinjiang International Travel's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 70% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 149% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is predicted to deliver 34% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this information, we find it odd that Shanghai Jinjiang International Travel is trading at a P/S lower than the industry. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

The Key Takeaway

Shares in Shanghai Jinjiang International Travel have risen appreciably however, its P/S is still subdued. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

The fact that Shanghai Jinjiang International Travel currently trades at a low P/S relative to the industry is unexpected considering its recent three-year growth is in line with the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's performance. While recent

Before you take the next step, you should know about the 3 warning signs for Shanghai Jinjiang International Travel (1 doesn't sit too well with us!) that we have uncovered.

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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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.