QITIAN Technology Group Co., Ltd. (SZSE:300061) Stock Rockets 103% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, QITIAN Technology Group Co., Ltd. (SZSE:300061) shares have been powering on, with a gain of 103% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 96% in the last year.

Following the firm bounce in price, when almost half of the companies in China's Medical Equipment industry have price-to-sales ratios (or "P/S") below 5.4x, you may consider QITIAN Technology Group as a stock not worth researching with its 9.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for QITIAN Technology Group

What Does QITIAN Technology Group's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at QITIAN Technology Group over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on QITIAN Technology Group's earnings, revenue and cash flow.

How Is QITIAN Technology Group's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 19% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 38% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 27% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we find it worrying that QITIAN Technology Group's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On QITIAN Technology Group's P/S

The strong share price surge has lead to QITIAN Technology Group'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.

We've established that QITIAN Technology Group currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with QITIAN Technology Group, and understanding should be part of your investment process.

If you're unsure about the strength of QITIAN Technology Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.