Hithink RoyalFlush Information Network Co., Ltd.'s (SZSE:300033) P/S Is Still On The Mark Following 26% Share Price Bounce

Hithink RoyalFlush Information Network Co., Ltd. (SZSE:300033) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. The last month tops off a massive increase of 153% in the last year.

Following the firm bounce in price, given around half the companies in China's Capital Markets industry have price-to-sales ratios (or "P/S") below 6.5x, you may consider Hithink RoyalFlush Information Network as a stock to avoid entirely with its 48.3x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Hithink RoyalFlush Information Network

How Hithink RoyalFlush Information Network Has Been Performing

Hithink RoyalFlush Information Network could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Keen to find out how analysts think Hithink RoyalFlush Information Network's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

Hithink RoyalFlush Information Network's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 3.5%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next year should generate growth of 22% as estimated by the eleven analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 17%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Hithink RoyalFlush Information Network'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 We Can Learn From Hithink RoyalFlush Information Network's P/S?

Shares in Hithink RoyalFlush Information Network have seen a strong upwards swing lately, which has really helped boost its P/S figure. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look into Hithink RoyalFlush Information Network shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Hithink RoyalFlush Information Network that you should be aware of.

If these risks are making you reconsider your opinion on Hithink RoyalFlush Information Network, 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.