Farsoon Technologies Co., Ltd. (SHSE:688433) Stocks Shoot Up 31% But Its P/S Still Looks Reasonable

Despite an already strong run, Farsoon Technologies Co., Ltd. (SHSE:688433) shares have been powering on, with a gain of 31% in the last thirty days. The last 30 days bring the annual gain to a very sharp 62%.

Following the firm bounce in price, given around half the companies in China's Machinery industry have price-to-sales ratios (or "P/S") below 3.6x, you may consider Farsoon Technologies as a stock to avoid entirely with its 35.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Farsoon Technologies

What Does Farsoon Technologies' P/S Mean For Shareholders?

Farsoon Technologies could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Farsoon Technologies' Revenue Growth Trending?

Farsoon Technologies' 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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 19%. Even so, admirably revenue has lifted 47% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 145% during the coming year according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 23%, which is noticeably less attractive.

With this information, we can see why Farsoon 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 We Can Learn From Farsoon Technologies' P/S?

Shares in Farsoon Technologies 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.

As we suspected, our examination of Farsoon Technologies' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Farsoon Technologies (1 doesn't sit too well with us!) that you should be aware of before investing here.

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.