China Railway Prefabricated Construction Co., Ltd's (SZSE:300374) 33% Jump Shows Its Popularity With Investors

Despite an already strong run, China Railway Prefabricated Construction Co., Ltd (SZSE:300374) shares have been powering on, with a gain of 33% in the last thirty days. The last 30 days bring the annual gain to a very sharp 75%.

Following the firm bounce in price, when almost half of the companies in China's Consumer Durables industry have price-to-sales ratios (or "P/S") below 2x, you may consider China Railway Prefabricated Construction as a stock probably not worth researching with its 3.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for China Railway Prefabricated Construction

How China Railway Prefabricated Construction Has Been Performing

Recent times have been advantageous for China Railway Prefabricated Construction as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. 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.

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

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 25% last year. The latest three year period has also seen an excellent 183% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 30% during the coming year according to the lone analyst following the company. With the industry only predicted to deliver 11%, the company is positioned for a stronger revenue result.

With this information, we can see why China Railway Prefabricated Construction is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

The large bounce in China Railway Prefabricated Construction's shares has lifted the company's P/S handsomely. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look into China Railway Prefabricated Construction shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with China Railway Prefabricated Construction, and understanding should be part of your investment process.

If you're unsure about the strength of China Railway Prefabricated Construction'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.