Qinghai Jinrui Mineral Development Co., Ltd (SHSE:600714) shareholders that were waiting for something to happen have been dealt a blow with a 25% 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 34% in that time.

Even after such a large drop in price, given around half the companies in China's Oil and Gas industry have price-to-sales ratios (or "P/S") below 1.2x, you may still consider Qinghai Jinrui Mineral Development as a stock to avoid entirely with its 8.2x P/S ratio. 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.

How Qinghai Jinrui Mineral Development Has Been Performing

As an illustration, revenue has deteriorated at Qinghai Jinrui Mineral Development over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

How Is Qinghai Jinrui Mineral Development's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Qinghai Jinrui Mineral Development's to be considered reasonable.

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 41%. Even so, admirably revenue has lifted 63% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 2.2%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in consideration, it's not hard to understand why Qinghai Jinrui Mineral Development's P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Qinghai Jinrui Mineral Development's P/S

Qinghai Jinrui Mineral Development's shares may have suffered, but its P/S remains high. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Qinghai Jinrui Mineral Development maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 3 warning signs for Qinghai Jinrui Mineral Development (1 is concerning!) 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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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.