Despite an already strong run, Jiu Rong Holdings Limited (HKG:2358) shares have been powering on, with a gain of 27% in the last thirty days.    Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 56% share price drop in the last twelve months.  

Although its price has surged higher, you could still be forgiven for feeling indifferent about Jiu Rong Holdings' P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Consumer Durables industry in Hong Kong is also close to 0.5x.  However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.    

See our latest analysis for Jiu Rong Holdings

SEHK:2358 Price to Sales Ratio vs Industry February 1st 2024

What Does Jiu Rong Holdings' Recent Performance Look Like?

Jiu Rong Holdings has been doing a good job lately as it's been growing revenue at a solid pace.   It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising.  Those who are bullish on Jiu Rong Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.    

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Jiu Rong Holdings' earnings, revenue and cash flow.  

Is There Some Revenue Growth Forecasted For Jiu Rong Holdings?  

In order to justify its P/S ratio, Jiu Rong Holdings would need to produce growth that's similar to the industry.  

Taking a look back first, we see that the company grew revenue by an impressive 16% last year.    The strong recent performance means it was also able to grow revenue by 34% in total over the last three years.  Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.  

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 34% shows it's noticeably less attractive.

With this information, we find it interesting that Jiu Rong Holdings is trading at a fairly similar P/S compared to the industry.  Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now.  They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.  

The Final Word

Jiu Rong Holdings appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry      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 Jiu Rong Holdings' average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast.  When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations.  If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.    

We don't want to rain on the parade too much, but we did also find 4 warning signs for Jiu Rong Holdings (3 don't sit too well with us!) that you need to be mindful of.  

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.