Why Investors Shouldn't Be Surprised By Zhejiang Entive Smart Kitchen Appliance Co., Ltd.'s (SZSE:300911) 33% Share Price Surge

Despite an already strong run, Zhejiang Entive Smart Kitchen Appliance Co., Ltd. (SZSE:300911) shares have been powering on, with a gain of 33% in the last thirty days. Looking further back, the 18% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, given around half the companies in China's Consumer Durables industry have price-to-sales ratios (or "P/S") below 2.3x, you may consider Zhejiang Entive Smart Kitchen Appliance as a stock to avoid entirely with its 6.4x 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 Zhejiang Entive Smart Kitchen Appliance

What Does Zhejiang Entive Smart Kitchen Appliance's P/S Mean For Shareholders?

Zhejiang Entive Smart Kitchen Appliance hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Zhejiang Entive Smart Kitchen Appliance.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as steep as Zhejiang Entive Smart Kitchen Appliance's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a frustrating 42% decrease to the company's top line. As a result, revenue from three years ago have also fallen 30% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 20% as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 10% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Zhejiang Entive Smart Kitchen Appliance's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Zhejiang Entive Smart Kitchen Appliance's P/S Mean For Investors?

Shares in Zhejiang Entive Smart Kitchen Appliance 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.

We've established that Zhejiang Entive Smart Kitchen Appliance 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 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 Zhejiang Entive Smart Kitchen Appliance, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Zhejiang Entive Smart Kitchen Appliance, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.