When close to half the companies operating in the Electrical industry in China have price-to-sales ratios (or "P/S") above 2.2x, you may consider Guangdong Jiayuan Technology Co.,Ltd. (SHSE:688388) as an attractive investment with its 1.5x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Guangdong Jiayuan TechnologyLtd Has Been Performing

Recent times haven't been great for Guangdong Jiayuan TechnologyLtd as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Guangdong Jiayuan TechnologyLtd?

In order to justify its P/S ratio, Guangdong Jiayuan TechnologyLtd would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 7.1%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, even though the last 12 months were fairly tame in comparison. 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 74% during the coming year according to the five analysts following the company. That's shaping up to be materially higher than the 23% growth forecast for the broader industry.

In light of this, it's peculiar that Guangdong Jiayuan TechnologyLtd's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What Does Guangdong Jiayuan TechnologyLtd's P/S Mean For Investors?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

To us, it seems Guangdong Jiayuan TechnologyLtd currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Guangdong Jiayuan TechnologyLtd (1 is a bit concerning!) that you should be aware of before investing here.

If you're unsure about the strength of Guangdong Jiayuan TechnologyLtd'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.