Why Investors Shouldn't Be Surprised By Bafang Electric (Suzhou) Co.,Ltd.'s (SHSE:603489) 28% Share Price Surge

Despite an already strong run, Bafang Electric (Suzhou) Co.,Ltd. (SHSE:603489) shares have been powering on, with a gain of 28% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 38% in the last twelve months.

Following the firm bounce in price, when almost half of the companies in China's Leisure industry have price-to-sales ratios (or "P/S") below 3.6x, you may consider Bafang Electric (Suzhou)Ltd as a stock probably not worth researching with its 4.7x 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 as high as it is.

See our latest analysis for Bafang Electric (Suzhou)Ltd

How Has Bafang Electric (Suzhou)Ltd Performed Recently?

While the industry has experienced revenue growth lately, Bafang Electric (Suzhou)Ltd's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. 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 Bafang Electric (Suzhou)Ltd will help you uncover what's on the horizon.

How Is Bafang Electric (Suzhou)Ltd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Bafang Electric (Suzhou)Ltd's is when the company's growth is on track to outshine the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 28%. As a result, revenue from three years ago have also fallen 44% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 36% as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 22% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Bafang Electric (Suzhou)Ltd's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Bafang Electric (Suzhou)Ltd's P/S Mean For Investors?

Bafang Electric (Suzhou)Ltd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Bafang Electric (Suzhou)Ltd's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 3 warning signs for Bafang Electric (Suzhou)Ltd (1 is concerning!) that we have uncovered.

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.