Why Investors Shouldn't Be Surprised By ZheJiang KangLongDa Special Protection Technology Co., Ltd's (SHSE:603665) 30% Share Price Surge

Those holding ZheJiang KangLongDa Special Protection Technology Co., Ltd (SHSE:603665) shares would be relieved that the share price has rebounded 30% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 35% over that time.

Even after such a large jump in price, it's still not a stretch to say that ZheJiang KangLongDa Special Protection Technology's price-to-sales (or "P/S") ratio of 2.1x right now seems quite "middle-of-the-road" compared to the Luxury industry in China, where the median P/S ratio is around 1.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for ZheJiang KangLongDa Special Protection Technology

What Does ZheJiang KangLongDa Special Protection Technology's P/S Mean For Shareholders?

ZheJiang KangLongDa Special Protection Technology certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on ZheJiang KangLongDa Special Protection Technology will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For ZheJiang KangLongDa Special Protection Technology?

The only time you'd be comfortable seeing a P/S like ZheJiang KangLongDa Special Protection Technology's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 53% last year. Pleasingly, revenue has also lifted 75% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 20% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this information, we can see why ZheJiang KangLongDa Special Protection Technology is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Key Takeaway

Its shares have lifted substantially and now ZheJiang KangLongDa Special Protection Technology's P/S is back within range of the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we've seen, ZheJiang KangLongDa Special Protection Technology's three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. With previous revenue trends that keep up with the current industry outlook, it's hard to justify the company's P/S ratio deviating much from it's current point. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

Plus, you should also learn about these 3 warning signs we've spotted with ZheJiang KangLongDa Special Protection Technology (including 1 which can't be ignored).

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.