With a median price-to-sales (or "P/S") ratio of close to 3.7x in the Electronic industry in China, you could be forgiven for feeling indifferent about Suzhou Jinfu Technology Co., Ltd.'s (SZSE:300128) P/S ratio of 3.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Suzhou Jinfu Technology's P/S Mean For Shareholders?

The revenue growth achieved at Suzhou Jinfu Technology over the last year would be more than acceptable for most companies. 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 Suzhou Jinfu Technology will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Is There Some Revenue Growth Forecasted For Suzhou Jinfu Technology?

The only time you'd be comfortable seeing a P/S like Suzhou Jinfu Technology's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 24%. As a result, it also grew revenue by 16% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 26% shows it's noticeably less attractive.

With this in mind, we find it intriguing that Suzhou Jinfu Technology's P/S is comparable to that of its industry peers. 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.

What Does Suzhou Jinfu Technology's P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Suzhou Jinfu Technology's 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. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

It is also worth noting that we have found 1 warning sign for Suzhou Jinfu Technology that you need to take into consideration.

If you're unsure about the strength of Suzhou Jinfu Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.