Jilin Chemical Fibre Stock Co.,Ltd (SZSE:000420) shareholders have had their patience rewarded with a 29% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 33% in the last year.

Although its price has surged higher, it's still not a stretch to say that Jilin Chemical Fibre StockLtd's price-to-sales (or "P/S") ratio of 2.7x right now seems quite "middle-of-the-road" compared to the Chemicals industry in China, where the median P/S ratio is around 2.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Jilin Chemical Fibre StockLtd's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Jilin Chemical Fibre StockLtd has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

How Is Jilin Chemical Fibre StockLtd's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Jilin Chemical Fibre StockLtd's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. Revenue has also lifted 9.3% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 25% over the next year. Meanwhile, the rest of the industry is forecast to expand by 25%, which is not materially different.

With this in mind, it makes sense that Jilin Chemical Fibre StockLtd's P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

Jilin Chemical Fibre StockLtd appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Our look at Jilin Chemical Fibre StockLtd's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

Before you take the next step, you should know about the 3 warning signs for Jilin Chemical Fibre StockLtd (1 doesn't sit too well with us!) that we have uncovered.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.