Why Investors Shouldn't Be Surprised By Jiangsu Huasheng Tianlong Photoelectric Co.,Ltd.'s (SZSE:300029) 32% Share Price Surge

Jiangsu Huasheng Tianlong Photoelectric Co.,Ltd. (SZSE:300029) shares have had a really impressive month, gaining 32% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 35% in the last twelve months.

After such a large jump in price, given close to half the companies operating in China's Construction industry have price-to-sales ratios (or "P/S") below 1x, you may consider Jiangsu Huasheng Tianlong PhotoelectricLtd as a stock to potentially avoid with its 2.3x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Jiangsu Huasheng Tianlong PhotoelectricLtd

How Has Jiangsu Huasheng Tianlong PhotoelectricLtd Performed Recently?

Recent times have been quite advantageous for Jiangsu Huasheng Tianlong PhotoelectricLtd as its revenue has been rising very briskly. 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. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for Jiangsu Huasheng Tianlong PhotoelectricLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Jiangsu Huasheng Tianlong PhotoelectricLtd?

Jiangsu Huasheng Tianlong PhotoelectricLtd's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 52% last year. Pleasingly, revenue has also lifted 166% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 13% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Jiangsu Huasheng Tianlong PhotoelectricLtd is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Jiangsu Huasheng Tianlong PhotoelectricLtd's P/S

Jiangsu Huasheng Tianlong PhotoelectricLtd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It's no surprise that Jiangsu Huasheng Tianlong PhotoelectricLtd can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Jiangsu Huasheng Tianlong PhotoelectricLtd (of which 1 is a bit concerning!) you should know about.

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.