Investors Appear Satisfied With Hithink RoyalFlush Information Network Co., Ltd.'s (SZSE:300033) Prospects As Shares Rocket 62%

Hithink RoyalFlush Information Network Co., Ltd. (SZSE:300033) shares have continued their recent momentum with a 62% gain in the last month alone. The annual gain comes to 112% following the latest surge, making investors sit up and take notice.

After such a large jump in price, you could be forgiven for thinking Hithink RoyalFlush Information Network is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 49.8x, considering almost half the companies in China's Capital Markets industry have P/S ratios below 7.5x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Hithink RoyalFlush Information Network

How Hithink RoyalFlush Information Network Has Been Performing

Hithink RoyalFlush Information Network 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Hithink RoyalFlush Information Network will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Hithink RoyalFlush Information Network's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 3.5% decrease to the company's top line. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 21% as estimated by the eleven analysts watching the company. With the industry only predicted to deliver 19%, the company is positioned for a stronger revenue result.

With this information, we can see why Hithink RoyalFlush Information Network 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 Key Takeaway

Shares in Hithink RoyalFlush Information Network have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Plus, you should also learn about these 2 warning signs we've spotted with Hithink RoyalFlush Information Network (including 1 which shouldn't be ignored).

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.