Subdued Growth No Barrier To Changbai Mountain Tourism Co., Ltd. (SHSE:603099) With Shares Advancing 35%

Despite an already strong run, Changbai Mountain Tourism Co., Ltd. (SHSE:603099) shares have been powering on, with a gain of 35% in the last thirty days. The last month tops off a massive increase of 261% in the last year.

Since its price has surged higher, Changbai Mountain Tourism may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 20.5x, since almost half of all companies in the Hospitality industry in China have P/S ratios under 6.2x and even P/S lower than 2x are not unusual. 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.

See our latest analysis for Changbai Mountain Tourism

What Does Changbai Mountain Tourism's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Changbai Mountain Tourism has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Changbai Mountain Tourism.

Is There Enough Revenue Growth Forecasted For Changbai Mountain Tourism?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Changbai Mountain Tourism's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 35% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 246% 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.

Turning to the outlook, the next year should generate growth of 13% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 34%, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that Changbai Mountain Tourism's P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Changbai Mountain Tourism's P/S?

The strong share price surge has lead to Changbai Mountain Tourism's P/S soaring as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Changbai Mountain Tourism, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Changbai Mountain Tourism with six simple checks on some of these key factors.

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.