Investors Appear Satisfied With Shenzhen Urban Transport Planning Center Co., Ltd.'s (SZSE:301091) Prospects As Shares Rocket 33%

Shenzhen Urban Transport Planning Center Co., Ltd. (SZSE:301091) shareholders have had their patience rewarded with a 33% share price jump in the last month. The annual gain comes to 129% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, when almost half of the companies in China's Professional Services industry have price-to-sales ratios (or "P/S") below 3x, you may consider Shenzhen Urban Transport Planning Center as a stock not worth researching with its 10.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Shenzhen Urban Transport Planning Center

What Does Shenzhen Urban Transport Planning Center's P/S Mean For Shareholders?

Shenzhen Urban Transport Planning Center could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Shenzhen Urban Transport Planning Center will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Shenzhen Urban Transport Planning Center would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Regardless, revenue has managed to lift by a handy 12% in aggregate from three years ago, thanks to the earlier period of growth. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 51% over the next year. That's shaping up to be materially higher than the 31% growth forecast for the broader industry.

In light of this, it's understandable that Shenzhen Urban Transport Planning Center's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Shares in Shenzhen Urban Transport Planning Center have seen a strong upwards swing lately, which has really helped boost its P/S figure. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into Shenzhen Urban Transport Planning Center 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Shenzhen Urban Transport Planning Center (at least 1 which is significant), and understanding these should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.