Guangzhou Great Power Energy and Technology Co., Ltd's (SZSE:300438) 54% Jump Shows Its Popularity With Investors

Despite an already strong run, Guangzhou Great Power Energy and Technology Co., Ltd (SZSE:300438) shares have been powering on, with a gain of 54% in the last thirty days. Looking further back, the 17% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Following the firm bounce in price, you could be forgiven for thinking Guangzhou Great Power Energy and Technology is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3x, considering almost half the companies in China's Electrical industry have P/S ratios below 2.4x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Guangzhou Great Power Energy and Technology

What Does Guangzhou Great Power Energy and Technology's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Guangzhou Great Power Energy and Technology's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Guangzhou Great Power Energy and Technology.

Is There Enough Revenue Growth Forecasted For Guangzhou Great Power Energy and Technology?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Guangzhou Great Power Energy and Technology's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 32% decrease to the company's top line. Even so, admirably revenue has lifted 32% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 33% over the next year. With the industry only predicted to deliver 23%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Guangzhou Great Power Energy and Technology's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Guangzhou Great Power Energy and Technology's P/S is on the rise since its shares have risen strongly. 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.

Our look into Guangzhou Great Power Energy and Technology shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Guangzhou Great Power Energy and Technology you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.