QuakeSafe Technologies Co., Ltd.'s (SZSE:300767) Shares Climb 28% But Its Business Is Yet to Catch Up

The QuakeSafe Technologies Co., Ltd. (SZSE:300767) share price has done very well over the last month, posting an excellent gain of 28%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 42% over that time.

Following the firm bounce in price, you could be forgiven for thinking QuakeSafe Technologies is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 4.9x, considering almost half the companies in China's Basic Materials industry have P/S ratios below 1.2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for QuakeSafe Technologies

What Does QuakeSafe Technologies' P/S Mean For Shareholders?

With revenue that's retreating more than the industry's average of late, QuakeSafe Technologies has been very sluggish. Perhaps the market is predicting a change in fortunes for the company and is expecting them to blow past the rest of the industry, elevating the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

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

The only time you'd be truly comfortable seeing a P/S as steep as QuakeSafe Technologies' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a frustrating 26% decrease to the company's top line. As a result, revenue from three years ago have also fallen 7.1% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 5.1% over the next year. That's shaping up to be materially lower than the 7.6% growth forecast for the broader industry.

In light of this, it's alarming that QuakeSafe Technologies' P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does QuakeSafe Technologies' P/S Mean For Investors?

The strong share price surge has lead to QuakeSafe Technologies' 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.

It comes as a surprise to see QuakeSafe Technologies trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

You should always think about risks. Case in point, we've spotted 1 warning sign for QuakeSafe Technologies you should be aware of.

If these risks are making you reconsider your opinion on QuakeSafe Technologies, 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.