Guangdong Shenling Environmental Systems Co., Ltd.'s (SZSE:301018) P/S Is Still On The Mark Following 41% Share Price Bounce

Guangdong Shenling Environmental Systems Co., Ltd. (SZSE:301018) shares have continued their recent momentum with a 41% gain in the last month alone. The last month tops off a massive increase of 131% in the last year.

Following the firm bounce in price, when almost half of the companies in China's Building industry have price-to-sales ratios (or "P/S") below 1.8x, you may consider Guangdong Shenling Environmental Systems as a stock not worth researching with its 5.4x 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 Guangdong Shenling Environmental Systems

What Does Guangdong Shenling Environmental Systems' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Guangdong Shenling Environmental Systems has been relatively sluggish. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. If not, then existing shareholders may be very 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 Guangdong Shenling Environmental Systems.

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

Guangdong Shenling Environmental Systems' 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 managed to grow revenues by a handy 4.0% last year. This was backed up an excellent period prior to see revenue up by 57% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 24% during the coming year according to the three analysts following the company. With the industry only predicted to deliver 16%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Guangdong Shenling Environmental Systems' 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 Bottom Line On Guangdong Shenling Environmental Systems' P/S

Shares in Guangdong Shenling Environmental Systems have seen a strong upwards swing lately, which has really helped boost its P/S figure. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look into Guangdong Shenling Environmental Systems shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You need to take note of risks, for example - Guangdong Shenling Environmental Systems has 2 warning signs (and 1 which can't be ignored) we think 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.