Qingdao Hi-Tech Moulds & Plastics Technology Co., Ltd.'s (SZSE:301022) 39% Price Boost Is Out Of Tune With Revenues

Qingdao Hi-Tech Moulds & Plastics Technology Co., Ltd. (SZSE:301022) shareholders would be excited to see that the share price has had a great month, posting a 39% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 32% 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 not worth researching with a price-to-sales ratios (or "P/S") of 3.7x, considering almost half the companies in China's Auto Components industry have P/S ratios below 2.9x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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

What Does Qingdao Hi-Tech Moulds & Plastics Technology's Recent Performance Look Like?

Revenue has risen firmly for Qingdao Hi-Tech Moulds & Plastics Technology recently, which is pleasing to see. 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. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Qingdao Hi-Tech Moulds & Plastics Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Qingdao Hi-Tech Moulds & Plastics Technology's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Qingdao Hi-Tech Moulds & Plastics Technology's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 20%. Revenue has also lifted 14% in aggregate from three years ago, mostly thanks to the last 12 months of growth. 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 24% 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. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Qingdao Hi-Tech Moulds & Plastics Technology's P/S?

Qingdao Hi-Tech Moulds & Plastics Technology's P/S is on the rise since its shares have risen strongly. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

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 see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

Before you settle on your opinion, we've discovered 3 warning signs for Qingdao Hi-Tech Moulds & Plastics Technology (2 don't sit too well with us!) that you should be aware of.

If these risks are making you reconsider your opinion on Qingdao Hi-Tech Moulds & Plastics Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.