Subdued Growth No Barrier To Beijing AriTime Intelligent Control Co., Ltd. (SHSE:600560) With Shares Advancing 31%

Beijing AriTime Intelligent Control Co., Ltd. (SHSE:600560) shares have had a really impressive month, gaining 31% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 33%.

After such a large jump in price, given close to half the companies operating in China's Electrical industry have price-to-sales ratios (or "P/S") below 2x, you may consider Beijing AriTime Intelligent Control as a stock to potentially avoid with its 3.7x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Beijing AriTime Intelligent Control

What Does Beijing AriTime Intelligent Control's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Beijing AriTime Intelligent Control has been doing very well. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Beijing AriTime Intelligent Control will help you shine a light on its historical performance.

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

In order to justify its P/S ratio, Beijing AriTime Intelligent Control would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 43% last year. The latest three year period has also seen a 23% overall rise in revenue, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 27% shows it's noticeably less attractive.

With this in mind, we find it worrying that Beijing AriTime Intelligent Control's P/S exceeds that of its industry peers. 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 Beijing AriTime Intelligent Control's P/S?

Beijing AriTime Intelligent Control's P/S is on the rise since its shares have risen strongly. 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.

Our examination of Beijing AriTime Intelligent Control 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for Beijing AriTime Intelligent Control you should be aware of.

If these risks are making you reconsider your opinion on Beijing AriTime Intelligent Control, 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.