When you see that almost half of the companies in the Auto Components industry in China have price-to-sales ratios (or "P/S") above 2.4x, Ningbo Jifeng Auto Parts Co., Ltd. (SHSE:603997) looks to be giving off some buy signals with its 0.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Ningbo Jifeng Auto Parts

What Does Ningbo Jifeng Auto Parts' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Ningbo Jifeng Auto Parts has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. 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 out of favour.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Ningbo Jifeng Auto Parts' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 20% last year. The strong recent performance means it was also able to grow revenue by 35% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 9.4% during the coming year according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 26%, which is noticeably more attractive.

With this information, we can see why Ningbo Jifeng Auto Parts is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Ningbo Jifeng Auto Parts' P/S Mean For Investors?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Ningbo Jifeng Auto Parts' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Having said that, be aware Ningbo Jifeng Auto Parts is showing 1 warning sign in our investment analysis, you should know about.

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

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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.