Harson Trading (China) Co.,Ltd.'s (SHSE:603958) 29% Price Boost Is Out Of Tune With Revenues

Despite an already strong run, Harson Trading (China) Co.,Ltd. (SHSE:603958) shares have been powering on, with a gain of 29% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 89% in the last year.

Following the firm bounce in price, given around half the companies in China's Luxury industry have price-to-sales ratios (or "P/S") below 1.6x, you may consider Harson Trading (China)Ltd as a stock to avoid entirely with its 4.4x 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 Harson Trading (China)Ltd

How Has Harson Trading (China)Ltd Performed Recently?

It looks like revenue growth has deserted Harson Trading (China)Ltd recently, which is not something to boast about. Perhaps the market believes that revenue growth will improve markedly over current levels, inflating the P/S ratio. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Harson Trading (China)Ltd will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Harson Trading (China)Ltd?

Harson Trading (China)Ltd'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.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 17% drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 14% shows it's an unpleasant look.

In light of this, it's alarming that Harson Trading (China)Ltd's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. 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 Harson Trading (China)Ltd's P/S

Harson Trading (China)Ltd's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

We've established that Harson Trading (China)Ltd currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Harson Trading (China)Ltd (1 is potentially serious!) that you need to be mindful of.

If you're unsure about the strength of Harson Trading (China)Ltd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.