Investors Appear Satisfied With Shanghai Luoman Technologies Inc.'s (SHSE:605289) Prospects As Shares Rocket 30%

Shanghai Luoman Technologies Inc. (SHSE:605289) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 27% in the last twelve months.

After such a large jump in price, you could be forgiven for thinking Shanghai Luoman Technologies is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 4x, considering almost half the companies in China's Construction industry have P/S ratios below 1x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Shanghai Luoman Technologies

What Does Shanghai Luoman Technologies' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Shanghai Luoman Technologies has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai Luoman Technologies.

Is There Enough Revenue Growth Forecasted For Shanghai Luoman Technologies?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Shanghai Luoman Technologies' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 55% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 4.9% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 65% over the next year. That's shaping up to be materially higher than the 15% growth forecast for the broader industry.

With this information, we can see why Shanghai Luoman Technologies is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Shanghai Luoman Technologies' P/S Mean For Investors?

Shanghai Luoman Technologies' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 look into Shanghai Luoman Technologies shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Shanghai Luoman Technologies you should know about.

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.