Despite an already strong run, Jiangsu Rijiu Optoelectronics Jointstock Co., Ltd (SZSE:003015) shares have been powering on, with a gain of 32% in the last thirty days. The last 30 days bring the annual gain to a very sharp 47%.

Following the firm bounce in price, Jiangsu Rijiu Optoelectronics may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 7.4x, when you consider almost half of the companies in the Electronic industry in China have P/S ratios under 4x and even P/S lower than 2x aren't out of the ordinary. 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 Has Jiangsu Rijiu Optoelectronics Performed Recently?

Revenue has risen firmly for Jiangsu Rijiu Optoelectronics recently, which is pleasing to see. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Jiangsu Rijiu Optoelectronics' Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Jiangsu Rijiu Optoelectronics' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 24% last year. The latest three year period has also seen a 9.2% overall rise in revenue, aided extensively by its short-term performance. 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 27% shows it's noticeably less attractive.

With this in mind, we find it worrying that Jiangsu Rijiu Optoelectronics' P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From Jiangsu Rijiu Optoelectronics' P/S?

Shares in Jiangsu Rijiu Optoelectronics have seen a strong upwards swing lately, which has really helped boost its P/S figure. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

The fact that Jiangsu Rijiu Optoelectronics 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. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Jiangsu Rijiu Optoelectronics (of which 1 is concerning!) you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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