Despite an already strong run, Jinzhou Yongshan Lithium Co., Ltd (SHSE:603399) shares have been powering on, with a gain of 74% in the last thirty days. Looking further back, the 15% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, there still wouldn't be many who think Jinzhou Yongshan Lithium's price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S in China's Metals and Mining industry is similar at about 1.5x. 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.

What Does Jinzhou Yongshan Lithium's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Jinzhou Yongshan Lithium over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

How Is Jinzhou Yongshan Lithium's Revenue Growth Trending?

In order to justify its P/S ratio, Jinzhou Yongshan Lithium would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 36%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 66% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 15%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's curious that Jinzhou Yongshan Lithium's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Jinzhou Yongshan Lithium 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.

To our surprise, Jinzhou Yongshan Lithium revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

You should always think about risks. Case in point, we've spotted 1 warning sign for Jinzhou Yongshan Lithium you should be aware of.

If these risks are making you reconsider your opinion on Jinzhou Yongshan Lithium, explore our interactive list of high quality stocks to get an idea of what else is out there.

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