Beijing Haitian Ruisheng Science Technology Ltd.'s (SHSE:688787) 38% Share Price Surge Not Quite Adding Up

Beijing Haitian Ruisheng Science Technology Ltd. (SHSE:688787) shares have had a really impressive month, gaining 38% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 31% in the last twelve months.

After such a large jump in price, when almost half of the companies in China's Professional Services industry have price-to-sales ratios (or "P/S") below 2.9x, you may consider Beijing Haitian Ruisheng Science Technology as a stock not worth researching with its 19.1x 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 Beijing Haitian Ruisheng Science Technology

How Has Beijing Haitian Ruisheng Science Technology Performed Recently?

As an illustration, revenue has deteriorated at Beijing Haitian Ruisheng Science Technology over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Beijing Haitian Ruisheng Science Technology will help you shine a light on its historical performance.

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.

Retrospectively, the last year delivered a frustrating 16% decrease to the company's top line. As a result, revenue from three years ago have also fallen 21% overall. 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 32% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Beijing Haitian Ruisheng Science Technology is trading at a P/S higher than the industry. 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 Beijing Haitian Ruisheng Science Technology's P/S?

Beijing Haitian Ruisheng Science Technology's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

We've established that Beijing Haitian Ruisheng Science Technology currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Beijing Haitian Ruisheng Science Technology (of which 1 is a bit unpleasant!) you should know about.

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.