Unfortunately for some shareholders, the New JCM Group Co.,Ltd (SZSE:300157) share price has dived 27% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 42% share price drop.
In spite of the heavy fall in price, it's still not a stretch to say that New JCM GroupLtd's price-to-sales (or "P/S") ratio of 2.4x right now seems quite "middle-of-the-road" compared to the Energy Services industry in China, where the median P/S ratio is around 2.2x. 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.
SZSE:300157 Price to Sales Ratio vs Industry April 17th 2024
What Does New JCM GroupLtd's P/S Mean For Shareholders?
New JCM GroupLtd certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on New JCM GroupLtd's earnings, revenue and cash flow.
What Are Revenue Growth Metrics Telling Us About The P/S?
The only time you'd be comfortable seeing a P/S like New JCM GroupLtd's is when the company's growth is tracking the industry closely.
If we review the last year of revenue growth, the company posted a terrific increase of 42%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 5.7% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 18% shows it's an unpleasant look.
In light of this, it's somewhat alarming that New JCM GroupLtd's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.
What Does New JCM GroupLtd's P/S Mean For Investors?
With its share price dropping off a cliff, the P/S for New JCM GroupLtd looks to be in line with the rest of the Energy Services industry. 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.
Our look at New JCM GroupLtd revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with New JCM GroupLtd, and understanding should be part of your investment process.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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.
