There's Reason For Concern Over Hangzhou Kaierda Welding Robot Co.,Ltd.'s (SHSE:688255) Massive 38% Price Jump

Despite an already strong run, Hangzhou Kaierda Welding Robot Co.,Ltd. (SHSE:688255) shares have been powering on, with a gain of 38% in the last thirty days. The annual gain comes to 120% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, when almost half of the companies in China's Machinery industry have price-to-sales ratios (or "P/S") below 3.1x, you may consider Hangzhou Kaierda Welding RobotLtd as a stock not worth researching with its 7.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Hangzhou Kaierda Welding RobotLtd

What Does Hangzhou Kaierda Welding RobotLtd's Recent Performance Look Like?

Hangzhou Kaierda Welding RobotLtd certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. 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 Hangzhou Kaierda Welding RobotLtd will help you shine a light on its historical performance.

How Is Hangzhou Kaierda Welding RobotLtd's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Hangzhou Kaierda Welding RobotLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 36% gain to the company's top line. Still, revenue has fallen 4.8% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 22% shows it's an unpleasant look.

In light of this, it's alarming that Hangzhou Kaierda Welding RobotLtd's P/S sits above the majority of other companies. 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. 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 Does Hangzhou Kaierda Welding RobotLtd's P/S Mean For Investors?

The strong share price surge has lead to Hangzhou Kaierda Welding RobotLtd's P/S soaring as well. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Hangzhou Kaierda Welding RobotLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Hangzhou Kaierda Welding RobotLtd that you should be aware of.

If these risks are making you reconsider your opinion on Hangzhou Kaierda Welding RobotLtd, 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.