Jiangsu Yawei Machine Tool Co., Ltd. (SZSE:002559) shareholders are no doubt pleased to see that the share price has bounced 43% in the last month, although it is still struggling to make up recently lost ground. Looking back a bit further, it's encouraging to see the stock is up 44% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Jiangsu Yawei Machine Tool's P/S ratio of 3.3x, since the median price-to-sales (or "P/S") ratio for the Machinery industry in China is also close to 2.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

What Does Jiangsu Yawei Machine Tool's Recent Performance Look Like?

Jiangsu Yawei Machine Tool could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. However, if this isn't the case, investors might get caught out paying too much for the stock.

Do Revenue Forecasts Match The P/S Ratio?

Jiangsu Yawei Machine Tool's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 8.8%. 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 19% in total. 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 dual analysts covering the company suggest revenue should grow by 27% over the next year. With the industry predicted to deliver 28% growth , the company is positioned for a comparable revenue result.

With this information, we can see why Jiangsu Yawei Machine Tool is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What We Can Learn From Jiangsu Yawei Machine Tool's P/S?

Its shares have lifted substantially and now Jiangsu Yawei Machine Tool's P/S is back within range of the industry median. 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.

A Jiangsu Yawei Machine Tool's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Machinery industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Jiangsu Yawei Machine Tool (1 doesn't sit too well with us!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Jiangsu Yawei Machine Tool, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.