Kexin Development Co.,Ltd,Shanxi (SHSE:600234) Stock Rockets 38% As Investors Are Less Pessimistic Than Expected

Kexin Development Co.,Ltd,Shanxi (SHSE:600234) shares have continued their recent momentum with a 38% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 24% in the last twelve months.

Since its price has surged higher, when almost half of the companies in China's Consumer Durables industry have price-to-sales ratios (or "P/S") below 2.4x, you may consider Kexin DevelopmentLtdShanxi as a stock not worth researching with its 10.4x 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 Kexin DevelopmentLtdShanxi

What Does Kexin DevelopmentLtdShanxi's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Kexin DevelopmentLtdShanxi has been doing very well. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Kexin DevelopmentLtdShanxi's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Kexin DevelopmentLtdShanxi?

The only time you'd be truly comfortable seeing a P/S as steep as Kexin DevelopmentLtdShanxi's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 56% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 86% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 10% shows it's an unpleasant look.

With this information, we find it concerning that Kexin DevelopmentLtdShanxi is trading at a P/S higher than the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On Kexin DevelopmentLtdShanxi's P/S

Kexin DevelopmentLtdShanxi's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

Our examination of Kexin DevelopmentLtdShanxi revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Kexin DevelopmentLtdShanxi you should know about.

If these risks are making you reconsider your opinion on Kexin DevelopmentLtdShanxi, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.