Despite an already strong run, Nanjing Business & Tourism Corp.,Ltd. (SHSE:600250) shares have been powering on, with a gain of 28% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 12% in the last twelve months.

After such a large jump in price, when almost half of the companies in China's Retail Distributors industry have price-to-sales ratios (or "P/S") below 0.5x, you may consider Nanjing Business & TourismLtd as a stock not worth researching with its 4.4x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

How Nanjing Business & TourismLtd Has Been Performing

Revenue has risen firmly for Nanjing Business & TourismLtd recently, which is pleasing to see. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is Nanjing Business & TourismLtd's Revenue Growth Trending?

Nanjing Business & TourismLtd's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 6.2% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 22% shows it's an unpleasant look.

In light of this, it's alarming that Nanjing Business & TourismLtd's P/S sits above the majority of other companies. 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. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Nanjing Business & TourismLtd's P/S?

Nanjing Business & TourismLtd's P/S has grown nicely over the last month thanks to a handy boost in the share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Nanjing Business & TourismLtd currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely 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.

Before you settle on your opinion, we've discovered 2 warning signs for Nanjing Business & TourismLtd (1 is a bit unpleasant!) that you should be aware of.

If you're unsure about the strength of Nanjing Business & TourismLtd'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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