Nanjing Chixia Development Co.,Ltd. (SHSE:600533) 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 18% in the last twelve months.

Even after such a large jump in price, Nanjing Chixia DevelopmentLtd's price-to-sales (or "P/S") ratio of 0.6x might still make it look like a buy right now compared to the Real Estate industry in China, where around half of the companies have P/S ratios above 2x and even P/S above 5x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

How Has Nanjing Chixia DevelopmentLtd Performed Recently?

For example, consider that Nanjing Chixia DevelopmentLtd's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Nanjing Chixia DevelopmentLtd will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Is There Any Revenue Growth Forecasted For Nanjing Chixia DevelopmentLtd?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Nanjing Chixia DevelopmentLtd's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 31% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 44% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

This is in contrast to the rest of the industry, which is expected to grow by 5.3% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Nanjing Chixia DevelopmentLtd is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

The latest share price surge wasn't enough to lift Nanjing Chixia DevelopmentLtd's P/S close to the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We're very surprised to see Nanjing Chixia DevelopmentLtd currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Nanjing Chixia DevelopmentLtd that you should be aware 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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