Gansu Huangtai Wine-Marketing Industry Co.,Ltd's (SZSE:000995) 26% Jump Shows Its Popularity With Investors

Gansu Huangtai Wine-Marketing Industry Co.,Ltd (SZSE:000995) shares have continued their recent momentum with a 26% gain in the last month alone. Looking further back, the 14% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, you could be forgiven for thinking Gansu Huangtai Wine-Marketing IndustryLtd is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 19.9x, considering almost half the companies in China's Beverage industry have P/S ratios below 5.3x. 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 Gansu Huangtai Wine-Marketing IndustryLtd

How Gansu Huangtai Wine-Marketing IndustryLtd Has Been Performing

Gansu Huangtai Wine-Marketing IndustryLtd has been doing a decent job lately as it's been growing revenue at a reasonable pace. One possibility is that the P/S ratio is high because investors think this good revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for Gansu Huangtai Wine-Marketing IndustryLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The High P/S?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Gansu Huangtai Wine-Marketing IndustryLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 6.5%. Pleasingly, revenue has also lifted 84% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 13% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we can see why Gansu Huangtai Wine-Marketing IndustryLtd is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Key Takeaway

The strong share price surge has lead to Gansu Huangtai Wine-Marketing IndustryLtd's P/S soaring as well. 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.

We've established that Gansu Huangtai Wine-Marketing IndustryLtd maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - Gansu Huangtai Wine-Marketing IndustryLtd has 3 warning signs we think you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.