Guang Dong Qun Xing Toys Joint-Stockco.,Ltd.'s (SZSE:002575) Shares Climb 29% But Its Business Is Yet to Catch Up

Guang Dong Qun Xing Toys Joint-Stockco.,Ltd. (SZSE:002575) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 4.3% in the last twelve months.

Since its price has surged higher, given around half the companies in China's Leisure industry have price-to-sales ratios (or "P/S") below 2.6x, you may consider Guang Dong Qun Xing Toys co.Ltd as a stock to avoid entirely with its 20.4x 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 Guang Dong Qun Xing Toys co.Ltd

What Does Guang Dong Qun Xing Toys co.Ltd's P/S Mean For Shareholders?

Recent times have been quite advantageous for Guang Dong Qun Xing Toys co.Ltd as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Guang Dong Qun Xing Toys co.Ltd will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Guang Dong Qun Xing Toys co.Ltd?

The only time you'd be truly comfortable seeing a P/S as steep as Guang Dong Qun Xing Toys co.Ltd'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's revenues underwent some rampant growth over the last 12 months. The amazing performance means it was also able to grow revenue by 76% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

It's interesting to note that the rest of the industry is similarly expected to grow by 21% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's curious that Guang Dong Qun Xing Toys co.Ltd's P/S sits above the majority of other companies. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as a continuation of recent revenue trends would weigh down the share price eventually.

What Does Guang Dong Qun Xing Toys co.Ltd's P/S Mean For Investors?

Shares in Guang Dong Qun Xing Toys co.Ltd 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 examination of Guang Dong Qun Xing Toys co.Ltd revealed its three-year revenue trends aren't impacting its high P/S as much as we would have predicted, given they look similar to current industry expectations. When we see average revenue with industry-like growth combined with a high P/S, we suspect the share price is at risk of declining, bringing the P/S back in line with the industry too. Unless there is a significant improvement in the company's medium-term trends, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Guang Dong Qun Xing Toys co.Ltd that you need to be mindful of.

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.