China Railway Prefabricated Construction Co., Ltd's (SZSE:300374) 28% Jump Shows Its Popularity With Investors

China Railway Prefabricated Construction Co., Ltd (SZSE:300374) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 5.5% isn't as attractive.

After such a large jump in price, given close to half the companies operating in China's Consumer Durables industry have price-to-sales ratios (or "P/S") below 1.8x, you may consider China Railway Prefabricated Construction as a stock to potentially avoid with its 2.4x 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 as high as it is.

View our latest analysis for China Railway Prefabricated Construction

How China Railway Prefabricated Construction Has Been Performing

China Railway Prefabricated Construction certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think China Railway Prefabricated Construction's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For China Railway Prefabricated Construction?

There's an inherent assumption that a company should outperform the industry for P/S ratios like China Railway Prefabricated Construction's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 62% last year. The strong recent performance means it was also able to grow revenue by 112% 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.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 21% over the next year. With the industry only predicted to deliver 9.2%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why China Railway Prefabricated Construction'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 China Railway Prefabricated Construction's P/S Mean For Investors?

China Railway Prefabricated Construction's P/S is on the rise since its shares have risen strongly. 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.

We've established that China Railway Prefabricated Construction maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Consumer Durables industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

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 China Railway Prefabricated Construction 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.