Jonjee Hi-Tech Industrial and Commercial Holding Co.,Ltd (SHSE:600872) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 33% in that time.

Even after such a large drop in price, you could still be forgiven for thinking Jonjee Hi-Tech Industrial and Commercial HoldingLtd is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.6x, considering almost half the companies in China's Food industry have P/S ratios below 2x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Jonjee Hi-Tech Industrial and Commercial HoldingLtd

What Does Jonjee Hi-Tech Industrial and Commercial HoldingLtd's Recent Performance Look Like?

Jonjee Hi-Tech Industrial and Commercial HoldingLtd 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. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Is There Enough Revenue Growth Forecasted For Jonjee Hi-Tech Industrial and Commercial HoldingLtd?

In order to justify its P/S ratio, Jonjee Hi-Tech Industrial and Commercial HoldingLtd would need to produce impressive growth in excess of the industry.

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 5.7%. Regardless, revenue has managed to lift by a handy 7.8% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 12% over the next year. With the industry predicted to deliver 17% growth, the company is positioned for a weaker revenue result.

In light of this, it's alarming that Jonjee Hi-Tech Industrial and Commercial HoldingLtd's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

Despite the recent share price weakness, Jonjee Hi-Tech Industrial and Commercial HoldingLtd's P/S remains higher than most other companies in the industry. 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.

We've concluded that Jonjee Hi-Tech Industrial and Commercial HoldingLtd currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Jonjee Hi-Tech Industrial and Commercial HoldingLtd that you should be aware of.

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.