Qingdao Huicheng Environmental Technology Group Co., Ltd.'s (SZSE:300779) 46% Jump Shows Its Popularity With Investors

Qingdao Huicheng Environmental Technology Group Co., Ltd. (SZSE:300779) shares have continued their recent momentum with a 46% gain in the last month alone. The annual gain comes to 136% following the latest surge, making investors sit up and take notice.

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 2.8x, you may consider Qingdao Huicheng Environmental Technology Group as a stock not worth researching with its 13.1x 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 Recent Performance Look Like?

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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Qingdao Huicheng Environmental Technology Group's future stacks up against the industry? In that case, our free report is a great place to start.

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

In order to justify its P/S ratio, Qingdao Huicheng Environmental Technology Group would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 60%. The strong recent performance means it was also able to grow revenue by 295% 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 59% during the coming year according to the dual analysts following the company. That's shaping up to be materially higher than the 29% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Qingdao Huicheng Environmental Technology 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 Final Word

The strong share price surge has lead to Qingdao Huicheng Environmental Technology Group's P/S soaring as well. 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. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Having said that, be aware Qingdao Huicheng Environmental Technology Group is showing 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant.

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.