The Jiangsu Jingyuan Environmental Protection Co.,Ltd. (SHSE:688096) share price has done very well over the last month, posting an excellent gain of 34%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 31% in the last twelve months.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Jiangsu Jingyuan Environmental ProtectionLtd's P/S ratio of 2.6x, since the median price-to-sales (or "P/S") ratio for the Machinery industry in China is also close to 2.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

How Has Jiangsu Jingyuan Environmental ProtectionLtd Performed Recently?

As an illustration, revenue has deteriorated at Jiangsu Jingyuan Environmental ProtectionLtd over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Jiangsu Jingyuan Environmental ProtectionLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Jiangsu Jingyuan Environmental ProtectionLtd would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 27% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 6.1% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Comparing that to the industry, which is predicted to deliver 23% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Jiangsu Jingyuan Environmental ProtectionLtd's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Final Word

Jiangsu Jingyuan Environmental ProtectionLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of 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 Jiangsu Jingyuan Environmental ProtectionLtd'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 the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Jiangsu Jingyuan Environmental ProtectionLtd that you should be aware of.

If you're unsure about the strength of Jiangsu Jingyuan Environmental ProtectionLtd'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.