Qingdao Huicheng Environmental Technology Group Co., Ltd. (SZSE:300779) Stocks Shoot Up 29% But Its P/S Still Looks Reasonable

The Qingdao Huicheng Environmental Technology Group Co., Ltd. (SZSE:300779) share price has done very well over the last month, posting an excellent gain of 29%. This latest share price bounce rounds out a remarkable 336% gain over the last twelve months.

After such a large jump in price, when almost half of the companies in China's Commercial Services industry have price-to-sales ratios (or "P/S") below 3.4x, you may consider Qingdao Huicheng Environmental Technology Group as a stock not worth researching with its 19.1x 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.

Check out our latest analysis for Qingdao Huicheng Environmental Technology Group

What Does Qingdao Huicheng Environmental Technology Group's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Qingdao Huicheng Environmental Technology Group has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

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.

How Is Qingdao Huicheng Environmental Technology Group's Revenue Growth Trending?

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.

Taking a look back first, we see that the company grew revenue by an impressive 27% last year. The strong recent performance means it was also able to grow revenue by 296% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 69% as estimated by the lone analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 32%, which is noticeably less attractive.

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 Does Qingdao Huicheng Environmental Technology Group's P/S Mean For Investors?

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.

As we suspected, our examination of Qingdao Huicheng Environmental Technology Group'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 these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with Qingdao Huicheng Environmental Technology Group (including 2 which make us uncomfortable).

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.