Why Investors Shouldn't Be Surprised By Qingdao Huicheng Environmental Technology Group Co., Ltd.'s (SZSE:300779) 31% Share Price Surge

Those holding Qingdao Huicheng Environmental Technology Group Co., Ltd. (SZSE:300779) shares would be relieved that the share price has rebounded 31% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 8.0% over the last year.

Following the firm bounce 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 5.9x 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

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

With revenue growth that's exceedingly strong of late, Qingdao Huicheng Environmental Technology Group has been doing very well. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Qingdao Huicheng Environmental Technology Group will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Qingdao Huicheng Environmental Technology Group?

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 194% last year. 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.

When compared to the industry's one-year growth forecast of 30%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we can see why Qingdao Huicheng Environmental Technology Group is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Qingdao Huicheng Environmental Technology Group's P/S

The strong share price surge has lead to Qingdao Huicheng Environmental Technology Group's P/S soaring as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Qingdao Huicheng Environmental Technology Group maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Qingdao Huicheng Environmental Technology Group (including 2 which shouldn't be ignored).

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.