After Leaping 26% Ningbo Solartron Technology Co.,Ltd. (SHSE:688299) Shares Are Not Flying Under The Radar

Despite an already strong run, Ningbo Solartron Technology Co.,Ltd. (SHSE:688299) shares have been powering on, with a gain of 26% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 34% in the last year.

After such a large jump in price, given close to half the companies operating in China's Chemicals industry have price-to-sales ratios (or "P/S") below 2.2x, you may consider Ningbo Solartron TechnologyLtd as a stock to potentially avoid with its 4.2x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Ningbo Solartron TechnologyLtd

How Ningbo Solartron TechnologyLtd Has Been Performing

With revenue growth that's superior to most other companies of late, Ningbo Solartron TechnologyLtd has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. 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 Ningbo Solartron TechnologyLtd.

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

In order to justify its P/S ratio, Ningbo Solartron TechnologyLtd would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 7.8%. The solid recent performance means it was also able to grow revenue by 5.4% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 32% over the next year. That's shaping up to be materially higher than the 25% growth forecast for the broader industry.

With this information, we can see why Ningbo Solartron TechnologyLtd is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Ningbo Solartron TechnologyLtd's P/S?

Ningbo Solartron TechnologyLtd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Ningbo Solartron TechnologyLtd's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Ningbo Solartron TechnologyLtd, and understanding them should be part of your investment process.

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.