Beijing Dinghan Technology Group Co.Ltd (SZSE:300011) Stock Rockets 33% As Investors Are Less Pessimistic Than Expected

Beijing Dinghan Technology Group Co.Ltd (SZSE:300011) shares have continued their recent momentum with a 33% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 13% is also fairly reasonable.

Following the firm bounce in price, given close to half the companies operating in China's Electrical industry have price-to-sales ratios (or "P/S") below 2.1x, you may consider Beijing Dinghan Technology GroupLtd as a stock to potentially avoid with its 2.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Beijing Dinghan Technology GroupLtd

What Does Beijing Dinghan Technology GroupLtd's P/S Mean For Shareholders?

Beijing Dinghan Technology GroupLtd has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Beijing Dinghan Technology GroupLtd?

In order to justify its P/S ratio, Beijing Dinghan Technology GroupLtd would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 27% gain to the company's top line. Revenue has also lifted 30% in aggregate from three years ago, mostly thanks to the last 12 months of growth. 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 23% shows it's noticeably less attractive.

In light of this, it's alarming that Beijing Dinghan Technology GroupLtd'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. 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.

What Does Beijing Dinghan Technology GroupLtd's P/S Mean For Investors?

The large bounce in Beijing Dinghan Technology GroupLtd's shares has lifted the company's P/S handsomely. 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.

The fact that Beijing Dinghan Technology GroupLtd 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. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Beijing Dinghan Technology GroupLtd (2 shouldn't be ignored!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.