Market Participants Recognise Hui Lyu Ecological Technology Groups Co.,Ltd.'s (SZSE:001267) Revenues Pushing Shares 27% Higher

Hui Lyu Ecological Technology Groups Co.,Ltd. (SZSE:001267) shares have continued their recent momentum with a 27% gain in the last month alone. The annual gain comes to 123% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, when almost half of the companies in China's Commercial Services industry have price-to-sales ratios (or "P/S") below 3.2x, you may consider Hui Lyu Ecological Technology GroupsLtd as a stock not worth researching with its 11.5x 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 Hui Lyu Ecological Technology GroupsLtd

How Hui Lyu Ecological Technology GroupsLtd Has Been Performing

Recent times haven't been great for Hui Lyu Ecological Technology GroupsLtd as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

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

What Are Revenue Growth Metrics Telling Us About The High P/S?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Hui Lyu Ecological Technology GroupsLtd's to be considered reasonable.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. This isn't what shareholders were looking for as it means they've been left with a 20% decline in revenue over the last three years in total. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 36% during the coming year according to the one analyst following the company. With the industry only predicted to deliver 32%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Hui Lyu Ecological Technology GroupsLtd'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 Key Takeaway

Shares in Hui Lyu Ecological Technology GroupsLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Hui Lyu Ecological Technology GroupsLtd's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

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

If these risks are making you reconsider your opinion on Hui Lyu Ecological Technology GroupsLtd, 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.