Juneyao Grand Healthy DrinksCo.,Ltd. (SHSE:605388) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 33% in the last twelve months.

After such a large jump in price, given close to half the companies operating in China's Food industry have price-to-sales ratios (or "P/S") below 1.5x, you may consider Juneyao Grand Healthy DrinksCo.Ltd as a stock to potentially avoid with its 2.4x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

What Does Juneyao Grand Healthy DrinksCo.Ltd's Recent Performance Look Like?

The recent revenue growth at Juneyao Grand Healthy DrinksCo.Ltd would have to be considered satisfactory if not spectacular. One possibility is that the P/S ratio is high because investors think this good revenue growth will be enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Is There Enough Revenue Growth Forecasted For Juneyao Grand Healthy DrinksCo.Ltd?

In order to justify its P/S ratio, Juneyao Grand Healthy DrinksCo.Ltd would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.5% last year. Pleasingly, revenue has also lifted 82% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 16% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Juneyao Grand Healthy DrinksCo.Ltd's P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Key Takeaway

The large bounce in Juneyao Grand Healthy DrinksCo.Ltd's shares has lifted the company's P/S handsomely. 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.

We've established that Juneyao Grand Healthy DrinksCo.Ltd maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Before you take the next step, you should know about the 4 warning signs for Juneyao Grand Healthy DrinksCo.Ltd (2 are significant!) 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.

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