Shenzhen Ridge Engineering Consulting Co., Ltd.'s (SZSE:300977) P/S Is Still On The Mark Following 49% Share Price Bounce

Shenzhen Ridge Engineering Consulting Co., Ltd. (SZSE:300977) shareholders have had their patience rewarded with a 49% share price jump in the last month. Looking further back, the 18% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, when almost half of the companies in China's Construction industry have price-to-sales ratios (or "P/S") below 1.2x, you may consider Shenzhen Ridge Engineering Consulting as a stock not worth researching with its 7.5x 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 Shenzhen Ridge Engineering Consulting

How Shenzhen Ridge Engineering Consulting Has Been Performing

While the industry has experienced revenue growth lately, Shenzhen Ridge Engineering Consulting'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 Shenzhen Ridge Engineering Consulting.

Is There Enough Revenue Growth Forecasted For Shenzhen Ridge Engineering Consulting?

Shenzhen Ridge Engineering Consulting'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.

Retrospectively, the last year delivered a frustrating 15% decrease to the company's top line. As a result, revenue from three years ago have also fallen 32% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 20% during the coming year according to the two analysts following the company. With the industry only predicted to deliver 14%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Shenzhen Ridge Engineering Consulting'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.

What We Can Learn From Shenzhen Ridge Engineering Consulting's P/S?

The strong share price surge has lead to Shenzhen Ridge Engineering Consulting's P/S soaring as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look into Shenzhen Ridge Engineering Consulting 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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Shenzhen Ridge Engineering Consulting (at least 2 which are potentially serious), and understanding them should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.