Jintuo Technology Co., Ltd.'s (SHSE:603211) price-to-sales (or "P/S") ratio of 5.4x may look like a poor investment opportunity when you consider close to half the companies in the Metals and Mining industry in China have P/S ratios below 1.4x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for Jintuo Technology

How Has Jintuo Technology Performed Recently?

It looks like revenue growth has deserted Jintuo Technology recently, which is not something to boast about. It might be that many are expecting an improvement to the uninspiring revenue performance over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be a little nervous about the viability of the share price.

Is There Enough Revenue Growth Forecasted For Jintuo Technology?

In order to justify its P/S ratio, Jintuo Technology would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period has seen an excellent 40% overall rise in revenue, in spite of its uninspiring short-term performance. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

Comparing that to the industry, which is predicted to deliver 17% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's alarming that Jintuo Technology's P/S sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Jintuo Technology's P/S

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.

The fact that Jintuo Technology currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

Having said that, be aware Jintuo Technology is showing 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.