Shanghai Beite Technology Co., Ltd. (SHSE:603009) Stock Rockets 44% As Investors Are Less Pessimistic Than Expected

Shanghai Beite Technology Co., Ltd. (SHSE:603009) shareholders would be excited to see that the share price has had a great month, posting a 44% gain and recovering from prior weakness. The last month tops off a massive increase of 204% in the last year.

After such a large jump in price, when almost half of the companies in China's Auto Components industry have price-to-sales ratios (or "P/S") below 2x, you may consider Shanghai Beite Technology as a stock not worth researching with its 4.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Shanghai Beite Technology

What Does Shanghai Beite Technology's P/S Mean For Shareholders?

Recent times haven't been great for Shanghai Beite Technology as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Shanghai Beite Technology will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

Shanghai Beite Technology's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. Revenue has also lifted 14% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 19% during the coming year according to the two analysts following the company. That's shaping up to be materially lower than the 23% growth forecast for the broader industry.

With this information, we find it concerning that Shanghai Beite Technology is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Shanghai Beite Technology's P/S

Shares in Shanghai Beite Technology have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

We've concluded that Shanghai Beite Technology currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 1 warning sign for Shanghai Beite Technology you should be aware of.

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.