Zhejiang Zhaolong Interconnect Technology Co.,Ltd.'s (SZSE:300913) 29% Share Price Surge Not Quite Adding Up

Despite an already strong run, Zhejiang Zhaolong Interconnect Technology Co.,Ltd. (SZSE:300913) shares have been powering on, with a gain of 29% in the last thirty days. The last 30 days bring the annual gain to a very sharp 46%.

Since its price has surged higher, when almost half of the companies in China's Electrical industry have price-to-sales ratios (or "P/S") below 2.5x, you may consider Zhejiang Zhaolong Interconnect TechnologyLtd as a stock not worth researching with its 6.6x 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.

View our latest analysis for Zhejiang Zhaolong Interconnect TechnologyLtd

What Does Zhejiang Zhaolong Interconnect TechnologyLtd's Recent Performance Look Like?

Recent times have been advantageous for Zhejiang Zhaolong Interconnect TechnologyLtd 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. 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 Zhejiang Zhaolong Interconnect TechnologyLtd will help you uncover what's on the horizon.

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

Zhejiang Zhaolong Interconnect TechnologyLtd's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 17% last year. The latest three year period has also seen a 26% overall rise in revenue, aided extensively by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 21% during the coming year according to the two analysts following the company. With the industry predicted to deliver 25% growth, the company is positioned for a weaker revenue result.

With this information, we find it concerning that Zhejiang Zhaolong Interconnect TechnologyLtd is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Zhejiang Zhaolong Interconnect TechnologyLtd's P/S?

The strong share price surge has lead to Zhejiang Zhaolong Interconnect TechnologyLtd's P/S soaring as well. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Zhejiang Zhaolong Interconnect TechnologyLtd, this doesn't appear to be impacting the P/S in the slightest. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

Before you take the next step, you should know about the 2 warning signs for Zhejiang Zhaolong Interconnect TechnologyLtd that we have uncovered.

If these risks are making you reconsider your opinion on Zhejiang Zhaolong Interconnect TechnologyLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.