Market Participants Recognise Guang Dong Qun Xing Toys Joint-Stockco.,Ltd.'s (SZSE:002575) Revenues Pushing Shares 31% Higher

Despite an already strong run, Guang Dong Qun Xing Toys Joint-Stockco.,Ltd. (SZSE:002575) shares have been powering on, with a gain of 31% in the last thirty days. Looking further back, the 25% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, given around half the companies in China's Leisure industry have price-to-sales ratios (or "P/S") below 3.4x, you may consider Guang Dong Qun Xing Toys co.Ltd as a stock to avoid entirely with its 18.6x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Guang Dong Qun Xing Toys co.Ltd

How Guang Dong Qun Xing Toys co.Ltd Has Been Performing

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. However, if this isn't the case, investors might get caught out paying too much for the stock.

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.

What Are Revenue Growth Metrics Telling Us About The High P/S?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Guang Dong Qun Xing Toys co.Ltd's to be considered reasonable.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The latest three year period has also seen an excellent 123% overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 22% shows it's noticeably more attractive.

With this information, we can see why Guang Dong Qun Xing Toys co.Ltd is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Key Takeaway

The strong share price surge has lead to Guang Dong Qun Xing Toys co.Ltd's P/S soaring as well. 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.

We've established that Guang Dong Qun Xing Toys co.Ltd maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Guang Dong Qun Xing Toys co.Ltd with six simple checks.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.