Qingdao Huicheng Environmental Technology Group Co., Ltd. (SZSE:300779) Looks Just Right With A 38% Price Jump

Qingdao Huicheng Environmental Technology Group Co., Ltd. (SZSE:300779) shares have had a really impressive month, gaining 38% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 56%.

After such a large jump in price, given around half the companies in China's Commercial Services industry have price-to-sales ratios (or "P/S") below 2.5x, you may consider Qingdao Huicheng Environmental Technology Group as a stock to avoid entirely with its 8.4x P/S ratio. 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.

View our latest analysis for Qingdao Huicheng Environmental Technology Group

How Qingdao Huicheng Environmental Technology Group Has Been Performing

Qingdao Huicheng Environmental Technology Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Qingdao Huicheng Environmental Technology Group.

Do Revenue Forecasts Match The High P/S Ratio?

Qingdao Huicheng Environmental Technology Group's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 194%. The strong recent performance means it was also able to grow revenue by 168% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 58% during the coming year according to the lone analyst following the company. With the industry only predicted to deliver 28%, the company is positioned for a stronger revenue result.

With this information, we can see why Qingdao Huicheng Environmental Technology Group is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Qingdao Huicheng Environmental Technology Group's P/S?

Shares in Qingdao Huicheng Environmental Technology Group have seen a strong upwards swing lately, which has really helped boost its P/S figure. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look into Qingdao Huicheng Environmental Technology 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. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Qingdao Huicheng Environmental Technology Group (of which 1 makes us a bit uncomfortable!) you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.