Guangdong Topstrong Living Innovation and Integration Co., Ltd.'s (SZSE:300749) Share Price Boosted 37% But Its Business Prospects Need A Lift Too

The Guangdong Topstrong Living Innovation and Integration Co., Ltd. (SZSE:300749) share price has done very well over the last month, posting an excellent gain of 37%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 23% over that time.

In spite of the firm bounce in price, Guangdong Topstrong Living Innovation and Integration may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.2x, since almost half of all companies in the Consumer Durables industry in China have P/S ratios greater than 2x and even P/S higher than 4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Guangdong Topstrong Living Innovation and Integration

What Does Guangdong Topstrong Living Innovation and Integration's P/S Mean For Shareholders?

Revenue has risen at a steady rate over the last year for Guangdong Topstrong Living Innovation and Integration, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. Those who are bullish on Guangdong Topstrong Living Innovation and Integration will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Guangdong Topstrong Living Innovation and Integration, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Guangdong Topstrong Living Innovation and Integration's Revenue Growth Trending?

In order to justify its P/S ratio, Guangdong Topstrong Living Innovation and Integration would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 7.4% gain to the company's revenues. The latest three year period has also seen a 15% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 9.3% shows it's noticeably less attractive.

With this information, we can see why Guangdong Topstrong Living Innovation and Integration is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On Guangdong Topstrong Living Innovation and Integration's P/S

The latest share price surge wasn't enough to lift Guangdong Topstrong Living Innovation and Integration's P/S close to the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Guangdong Topstrong Living Innovation and Integration confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Guangdong Topstrong Living Innovation and Integration that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.