Revenues Not Telling The Story For Zhejiang FORE Intelligent Technology Co.,Ltd (SZSE:301368) After Shares Rise 32%

Zhejiang FORE Intelligent Technology Co.,Ltd (SZSE:301368) shares have continued their recent momentum with a 32% gain in the last month alone. Looking further back, the 24% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Following the firm bounce in price, you could be forgiven for thinking Zhejiang FORE Intelligent TechnologyLtd is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 14x, considering almost half the companies in China's Machinery industry have P/S ratios below 3.2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Zhejiang FORE Intelligent TechnologyLtd

How Has Zhejiang FORE Intelligent TechnologyLtd Performed Recently?

Zhejiang FORE Intelligent TechnologyLtd has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Zhejiang FORE Intelligent TechnologyLtd will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Zhejiang FORE Intelligent TechnologyLtd?

The only time you'd be truly comfortable seeing a P/S as steep as Zhejiang FORE Intelligent TechnologyLtd's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 22% gain to the company's top line. However, this wasn't enough as the latest three year period has seen the company endure a nasty 15% drop in revenue in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 25% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's alarming that Zhejiang FORE Intelligent TechnologyLtd's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Zhejiang FORE Intelligent TechnologyLtd's P/S?

The strong share price surge has lead to Zhejiang FORE Intelligent TechnologyLtd's P/S soaring as well. 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 examination of Zhejiang FORE Intelligent TechnologyLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Zhejiang FORE Intelligent TechnologyLtd (of which 2 are a bit concerning!) you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.