Subdued Growth No Barrier To Keli Motor Group Co., Ltd. (SZSE:002892) With Shares Advancing 30%

Keli Motor Group Co., Ltd. (SZSE:002892) shares have continued their recent momentum with a 30% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 42% in the last year.

After such a large jump in price, given around half the companies in China's Electrical industry have price-to-sales ratios (or "P/S") below 2.4x, you may consider Keli Motor Group as a stock to avoid entirely with its 6x 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 Keli Motor Group

How Keli Motor Group Has Been Performing

Keli Motor Group has been doing a good job lately as it's been growing revenue at a solid pace. 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 Keli Motor Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Keli Motor Group's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Keli Motor Group's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 23% gain to the company's top line. As a result, it also grew revenue by 13% in total over the last three years. 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 27% shows it's noticeably less attractive.

With this information, we find it concerning that Keli Motor Group is trading at a P/S higher than the industry. 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. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Keli Motor Group's P/S

Keli Motor Group's P/S has grown nicely over the last month thanks to a handy boost in the share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

The fact that Keli Motor Group currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. 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. 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.

Before you take the next step, you should know about the 2 warning signs for Keli Motor Group (1 is a bit concerning!) that we have uncovered.

If these risks are making you reconsider your opinion on Keli Motor Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.