Market Participants Recognise Changsha DIALINE New Material Sci.&Tech. Co., Ltd.'s (SZSE:300700) Revenues Pushing Shares 40% Higher

Changsha DIALINE New Material Sci.&Tech. Co., Ltd. (SZSE:300700) shareholders are no doubt pleased to see that the share price has bounced 40% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 33% over that time.

After such a large jump in price, given close to half the companies operating in China's Machinery industry have price-to-sales ratios (or "P/S") below 2.7x, you may consider Changsha DIALINE New Material Sci.&Tech as a stock to potentially avoid with its 3.8x 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 as high as it is.

View our latest analysis for Changsha DIALINE New Material Sci.&Tech

What Does Changsha DIALINE New Material Sci.&Tech's Recent Performance Look Like?

Recent times have been advantageous for Changsha DIALINE New Material Sci.&Tech as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Changsha DIALINE New Material Sci.&Tech.

What Are Revenue Growth Metrics Telling Us About The High P/S?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Changsha DIALINE New Material Sci.&Tech's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 77%. The latest three year period has also seen an excellent 268% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 87% as estimated by the one analyst watching the company. With the industry only predicted to deliver 27%, the company is positioned for a stronger revenue result.

With this information, we can see why Changsha DIALINE New Material Sci.&Tech is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Changsha DIALINE New Material Sci.&Tech's P/S

Changsha DIALINE New Material Sci.&Tech shares have taken a big step in a northerly direction, but its P/S is elevated as a result. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Changsha DIALINE New Material Sci.&Tech's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Changsha DIALINE New Material Sci.&Tech (of which 1 is concerning!) you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.