M-Grass Ecology And Environment (Group) Co., Ltd.'s (SZSE:300355) 25% Jump Shows Its Popularity With Investors

Despite an already strong run, M-Grass Ecology And Environment (Group) Co., Ltd. (SZSE:300355) shares have been powering on, with a gain of 25% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 63% in the last year.

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 3x, you may consider M-Grass Ecology And Environment (Group) as a stock not worth researching with its 5.8x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for M-Grass Ecology And Environment (Group)

How M-Grass Ecology And Environment (Group) Has Been Performing

While the industry has experienced revenue growth lately, M-Grass Ecology And Environment (Group)'s revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Keen to find out how analysts think M-Grass Ecology And Environment (Group)'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 M-Grass Ecology And Environment (Group)'s to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 9.5%. The last three years don't look nice either as the company has shrunk revenue by 32% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 77% as estimated by the only analyst watching the company. With the industry only predicted to deliver 35%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why M-Grass Ecology And Environment (Group)'s P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On M-Grass Ecology And Environment (Group)'s P/S

Shares in M-Grass Ecology And Environment (Group) have seen a strong upwards swing lately, which has really helped boost its P/S figure. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look into M-Grass Ecology And Environment (Group) shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for M-Grass Ecology And Environment (Group) that you should be aware of.

If you're unsure about the strength of M-Grass Ecology And Environment (Group)'s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.