Jiu Rong Holdings Limited (HKG:2358) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance.    The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 71% loss during that time.  

In spite of the heavy fall in price, there still wouldn't be many who think Jiu Rong Holdings' price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Hong Kong's Consumer Durables industry is similar at about 0.5x.  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.    

SEHK:2358 Price to Sales Ratio vs Industry March 17th 2024

What Does Jiu Rong Holdings' P/S Mean For Shareholders?

Revenue has risen firmly for Jiu Rong Holdings recently, which is pleasing to see.   It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising.  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 Jiu Rong Holdings' earnings, revenue and cash flow.  

How Is Jiu Rong Holdings' Revenue Growth Trending?  

Jiu Rong Holdings' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.  

If we review the last year of revenue growth, the company posted a terrific increase of 16%.   Pleasingly, revenue has also lifted 34% in aggregate from three years ago, thanks to the last 12 months of growth.  Therefore, it's fair to say the revenue growth recently has been superb for the company.  

This is in contrast to the rest of the industry, which is expected to grow by 34% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Jiu Rong Holdings is trading at a fairly similar P/S compared to the industry.  Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now.  Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.  

What Does Jiu Rong Holdings' P/S Mean For Investors?

Following Jiu Rong Holdings' share price tumble, its P/S is just clinging on to the industry median P/S.      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 examination of Jiu Rong Holdings revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook.  When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations.  If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.    

We don't want to rain on the parade too much, but we did also find 4 warning signs for Jiu Rong Holdings (3 shouldn't be ignored!) that you need to be mindful of.  

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.