Qingdao Hi-Tech Moulds & Plastics Technology Co., Ltd.'s (SZSE:301022) 58% Price Boost Is Out Of Tune With Revenues

Qingdao Hi-Tech Moulds & Plastics Technology Co., Ltd. (SZSE:301022) shares have had a really impressive month, gaining 58% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 47% in the last year.

Following the firm bounce in price, you could be forgiven for thinking Qingdao Hi-Tech Moulds & Plastics Technology is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 5.2x, considering almost half the companies in China's Auto Components industry have P/S ratios below 2.4x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Qingdao Hi-Tech Moulds & Plastics Technology

How Has Qingdao Hi-Tech Moulds & Plastics Technology Performed Recently?

Qingdao Hi-Tech Moulds & Plastics Technology has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Qingdao Hi-Tech Moulds & Plastics Technology will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The High P/S?

Qingdao Hi-Tech Moulds & Plastics 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 7.8% last year. The solid recent performance means it was also able to grow revenue by 21% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 22% shows it's noticeably less attractive.

With this information, we find it concerning that Qingdao Hi-Tech Moulds & Plastics Technology is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Qingdao Hi-Tech Moulds & Plastics Technology's P/S

Shares in Qingdao Hi-Tech Moulds & Plastics Technology have seen a strong upwards swing lately, which has really helped boost its P/S figure. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of Qingdao Hi-Tech Moulds & Plastics Technology revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware Qingdao Hi-Tech Moulds & Plastics Technology is showing 4 warning signs in our investment analysis, and 2 of those are a bit concerning.

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.