Beijing Haitian Ruisheng Science Technology Ltd.'s (SHSE:688787) Popularity With Investors Under Threat As Stock Sinks 26%

Beijing Haitian Ruisheng Science Technology Ltd. (SHSE:688787) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. Looking at the bigger picture, even after this poor month the stock is up 49% in the last year.

Even after such a large drop in price, Beijing Haitian Ruisheng Science Technology may still be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 24.8x, since almost half of all companies in the Professional Services industry in China have P/S ratios under 3.7x and even P/S lower than 1.7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Beijing Haitian Ruisheng Science Technology

How Beijing Haitian Ruisheng Science Technology Has Been Performing

With revenue growth that's exceedingly strong of late, Beijing Haitian Ruisheng Science Technology has been doing very well. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Beijing Haitian Ruisheng Science Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Beijing Haitian Ruisheng Science Technology's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Beijing Haitian Ruisheng Science Technology's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 39% last year. As a result, it also grew revenue by 15% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

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

With this information, we find it concerning that Beijing Haitian Ruisheng Science Technology is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Beijing Haitian Ruisheng Science Technology's P/S

A significant share price dive has done very little to deflate Beijing Haitian Ruisheng Science Technology's very lofty P/S. 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 examination of Beijing Haitian Ruisheng Science Technology revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Beijing Haitian Ruisheng Science Technology, and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on Beijing Haitian Ruisheng Science Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.