Optimistic Investors Push Jiangsu Huasheng Tianlong Photoelectric Co.,Ltd. (SZSE:300029) Shares Up 34% But Growth Is Lacking

Despite an already strong run, Jiangsu Huasheng Tianlong Photoelectric Co.,Ltd. (SZSE:300029) shares have been powering on, with a gain of 34% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 24% over that time.

After such a large jump in price, when almost half of the companies in China's Construction industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider Jiangsu Huasheng Tianlong PhotoelectricLtd as a stock not worth researching with its 4.5x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Jiangsu Huasheng Tianlong PhotoelectricLtd

What Does Jiangsu Huasheng Tianlong PhotoelectricLtd's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Jiangsu Huasheng Tianlong PhotoelectricLtd over the last year, which is not ideal at all. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. If not, then existing shareholders may be quite 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 Jiangsu Huasheng Tianlong PhotoelectricLtd will help you shine a light on its historical performance.

Do Revenue Forecasts Match The High P/S Ratio?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 18%. Even so, admirably revenue has lifted 36% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

This is in contrast to the rest of the industry, which is expected to grow by 14% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that Jiangsu Huasheng Tianlong PhotoelectricLtd'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.

The Final Word

Shares in Jiangsu Huasheng Tianlong PhotoelectricLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 Jiangsu Huasheng Tianlong PhotoelectricLtd 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 observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. 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 before investing and we've discovered 1 warning sign for Jiangsu Huasheng Tianlong PhotoelectricLtd that you should be aware of.

If you're unsure about the strength of Jiangsu Huasheng Tianlong PhotoelectricLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.