Investors Appear Satisfied With Guangdong Modern High-tech Fiber Co., Ltd's (SZSE:300876) Prospects As Shares Rocket 34%

The Guangdong Modern High-tech Fiber Co., Ltd (SZSE:300876) share price has done very well over the last month, posting an excellent gain of 34%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 16% over that time.

Following the firm bounce in price, given around half the companies in China's Chemicals industry have price-to-sales ratios (or "P/S") below 2.3x, you may consider Guangdong Modern High-tech Fiber as a stock to avoid entirely with its 4.3x P/S ratio. 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 Guangdong Modern High-tech Fiber

What Does Guangdong Modern High-tech Fiber's P/S Mean For Shareholders?

Recent times have been advantageous for Guangdong Modern High-tech Fiber as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. 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 Guangdong Modern High-tech Fiber.

How Is Guangdong Modern High-tech Fiber's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Guangdong Modern High-tech Fiber's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company managed to grow revenues by a handy 9.6% last year. The solid recent performance means it was also able to grow revenue by 18% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 26% during the coming year according to the one analyst following the company. That's shaping up to be materially higher than the 22% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Guangdong Modern High-tech Fiber's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Guangdong Modern High-tech Fiber's P/S Mean For Investors?

Guangdong Modern High-tech Fiber's P/S has grown nicely over the last month thanks to a handy boost in the share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look into Guangdong Modern High-tech Fiber shows that its P/S ratio remains high on the merit of its strong future revenues. 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.

Before you take the next step, you should know about the 2 warning signs for Guangdong Modern High-tech Fiber that we have uncovered.

If you're unsure about the strength of Guangdong Modern High-tech Fiber'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.