Why We're Not Concerned About Suzhou Kematek, Inc.'s (SZSE:301611) Share Price

When you see that almost half of the companies in the Machinery industry in China have price-to-sales ratios (or "P/S") below 3.4x, Suzhou Kematek, Inc. (SZSE:301611) looks to be giving off strong sell signals with its 37.3x P/S ratio. 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 Suzhou Kematek

What Does Suzhou Kematek's Recent Performance Look Like?

Suzhou Kematek certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Suzhou Kematek's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Suzhou Kematek's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Suzhou Kematek's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 56% last year. Pleasingly, revenue has also lifted 116% in aggregate from three years ago, thanks to the last 12 months of growth. 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 36% as estimated by the lone analyst watching the company. With the industry only predicted to deliver 23%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Suzhou Kematek'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.

The Bottom Line On Suzhou Kematek's P/S

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.

We've established that Suzhou Kematek maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Machinery industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Suzhou Kematek that you need to be mindful of.

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.