There's Reason For Concern Over GuangDong PaiSheng Intelligent Technology Co.,Ltd's (SZSE:300176) Massive 44% Price Jump

Despite an already strong run, GuangDong PaiSheng Intelligent Technology Co.,Ltd (SZSE:300176) shares have been powering on, with a gain of 44% in the last thirty days. Looking further back, the 25% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about GuangDong PaiSheng Intelligent TechnologyLtd's P/S ratio of 1.9x, since the median price-to-sales (or "P/S") ratio for the Auto Components industry in China is also close to 2.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for GuangDong PaiSheng Intelligent TechnologyLtd

What Does GuangDong PaiSheng Intelligent TechnologyLtd's P/S Mean For Shareholders?

GuangDong PaiSheng Intelligent TechnologyLtd has been doing a decent job lately as it's been growing revenue at a reasonable pace. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.

Although there are no analyst estimates available for GuangDong PaiSheng Intelligent TechnologyLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For GuangDong PaiSheng Intelligent TechnologyLtd?

In order to justify its P/S ratio, GuangDong PaiSheng Intelligent TechnologyLtd would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 5.3% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 41% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 24% shows it's noticeably less attractive.

In light of this, it's curious that GuangDong PaiSheng Intelligent TechnologyLtd's P/S sits in line with the majority of other companies. 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. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does GuangDong PaiSheng Intelligent TechnologyLtd's P/S Mean For Investors?

Its shares have lifted substantially and now GuangDong PaiSheng Intelligent TechnologyLtd's P/S is back within range of the industry median. 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 GuangDong PaiSheng Intelligent TechnologyLtd 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. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Before you settle on your opinion, we've discovered 2 warning signs for GuangDong PaiSheng Intelligent TechnologyLtd (1 is significant!) that 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.