The JinkoSolar Holding Co., Ltd. (NYSE:JKS) share price has done very well over the last month, posting an excellent gain of 33%. Notwithstanding the latest gain, the annual share price return of 5.9% isn't as impressive.
Even after such a large jump in price, JinkoSolar Holding's price-to-sales (or "P/S") ratio of 0.1x might still make it look like a strong buy right now compared to the wider Semiconductor industry in the United States, where around half of the companies have P/S ratios above 4x and even P/S above 11x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
See our latest analysis for JinkoSolar Holding
What Does JinkoSolar Holding's P/S Mean For Shareholders?
JinkoSolar Holding hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.
Keen to find out how analysts think JinkoSolar Holding's future stacks up against the industry? In that case, our free report is a great place to start.Do Revenue Forecasts Match The Low P/S Ratio?
JinkoSolar Holding's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.
Retrospectively, the last year delivered a frustrating 30% decrease to the company's top line. Even so, admirably revenue has lifted 74% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.
Shifting to the future, estimates from the six analysts covering the company suggest revenue growth is heading into negative territory, declining 0.5% over the next year. Meanwhile, the broader industry is forecast to expand by 30%, which paints a poor picture.
With this information, we are not surprised that JinkoSolar Holding is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
The Final Word
Shares in JinkoSolar Holding have risen appreciably however, its P/S is still subdued. 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 JinkoSolar Holding's analyst forecasts revealed that its outlook for shrinking revenue 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
It is also worth noting that we have found 2 warning signs for JinkoSolar Holding that you need to take into consideration.
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).
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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.