Despite an already strong run, Zhejiang JW Precision Machinery Co.,Ltd (SZSE:300984) shares have been powering on, with a gain of 51% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 41% in the last year.

Even after such a large jump in price, there still wouldn't be many who think Zhejiang JW Precision MachineryLtd's price-to-sales (or "P/S") ratio of 2.8x is worth a mention when the median P/S in China's Machinery industry is similar at about 3.1x. 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 Zhejiang JW Precision MachineryLtd Performed Recently?

Zhejiang JW Precision MachineryLtd has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Is There Some Revenue Growth Forecasted For Zhejiang JW Precision MachineryLtd?

In order to justify its P/S ratio, Zhejiang JW Precision MachineryLtd would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. Pleasingly, revenue has also lifted 34% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 22% shows it's noticeably less attractive.

In light of this, it's curious that Zhejiang JW Precision MachineryLtd's P/S sits in line with the majority of other companies. 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 Bottom Line On Zhejiang JW Precision MachineryLtd's P/S

Its shares have lifted substantially and now Zhejiang JW Precision MachineryLtd's P/S is back within range of the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Zhejiang JW Precision MachineryLtd's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

And what about other risks? Every company has them, and we've spotted 5 warning signs for Zhejiang JW Precision MachineryLtd (of which 3 shouldn't be ignored!) you should know about.

If you're unsure about the strength of Zhejiang JW Precision MachineryLtd'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.