Market Participants Recognise Shanghai Emperor of Cleaning Hi-Tech Co., Ltd's (SHSE:603200) Revenues Pushing Shares 25% Higher

The Shanghai Emperor of Cleaning Hi-Tech Co., Ltd (SHSE:603200) share price has done very well over the last month, posting an excellent gain of 25%. Looking back a bit further, it's encouraging to see the stock is up 88% in the last year.

Since its price has surged higher, you could be forgiven for thinking Shanghai Emperor of Cleaning Hi-Tech is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 9.4x, considering almost half the companies in China's Commercial Services industry have P/S ratios below 3.4x. 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 Shanghai Emperor of Cleaning Hi-Tech

How Shanghai Emperor of Cleaning Hi-Tech Has Been Performing

Recent revenue growth for Shanghai Emperor of Cleaning Hi-Tech has been in line with the industry. Perhaps the market is expecting future revenue performance to improve, justifying the currently elevated P/S. 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 Shanghai Emperor of Cleaning Hi-Tech will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Shanghai Emperor of Cleaning Hi-Tech?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Shanghai Emperor of Cleaning Hi-Tech's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.7% last year. The latest three year period has also seen a 6.1% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 61% as estimated by the lone analyst watching the company. That's shaping up to be materially higher than the 32% growth forecast for the broader industry.

With this information, we can see why Shanghai Emperor of Cleaning Hi-Tech is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Shanghai Emperor of Cleaning Hi-Tech's P/S?

The strong share price surge has lead to Shanghai Emperor of Cleaning Hi-Tech'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 Shanghai Emperor of Cleaning Hi-Tech shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Shanghai Emperor of Cleaning Hi-Tech you should be aware of.

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.