Guangzhou Goaland Energy Conservation Tech. Co., Ltd.'s (SZSE:300499) 33% Jump Shows Its Popularity With Investors

Guangzhou Goaland Energy Conservation Tech. Co., Ltd. (SZSE:300499) 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 12% is also fairly reasonable.

Following the firm bounce in price, given around half the companies in China's Machinery industry have price-to-sales ratios (or "P/S") below 3.1x, you may consider Guangzhou Goaland Energy Conservation Tech as a stock to avoid entirely with its 9.6x 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.

Check out our latest analysis for Guangzhou Goaland Energy Conservation Tech

What Does Guangzhou Goaland Energy Conservation Tech's P/S Mean For Shareholders?

Guangzhou Goaland Energy Conservation Tech hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Guangzhou Goaland Energy Conservation Tech will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Guangzhou Goaland Energy Conservation Tech?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Guangzhou Goaland Energy Conservation Tech's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 40%. The last three years don't look nice either as the company has shrunk revenue by 64% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 90% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 24% growth forecast for the broader industry.

In light of this, it's understandable that Guangzhou Goaland Energy Conservation Tech's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Guangzhou Goaland Energy Conservation Tech's P/S?

The strong share price surge has lead to Guangzhou Goaland Energy Conservation Tech's P/S soaring as well. 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 Goaland Energy Conservation Tech 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Guangzhou Goaland Energy Conservation Tech is showing 1 warning sign in our investment analysis, 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.

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.