Shanghai Film Co., Ltd.'s (SHSE:601595) 26% Jump Shows Its Popularity With Investors

Despite an already strong run, Shanghai Film Co., Ltd. (SHSE:601595) shares have been powering on, with a gain of 26% in the last thirty days. Looking further back, the 23% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, given around half the companies in China's Entertainment industry have price-to-sales ratios (or "P/S") below 7.2x, you may consider Shanghai Film as a stock to avoid entirely with its 17x 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.

View our latest analysis for Shanghai Film

How Has Shanghai Film Performed Recently?

Recent times haven't been great for Shanghai Film as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Shanghai Film will help you uncover what's on the horizon.

How Is Shanghai Film's Revenue Growth Trending?

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

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. The longer-term trend has been no better as the company has no revenue growth to show for over the last three years either. So it seems apparent to us that the company has struggled to grow revenue meaningfully over that time.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 52% over the next year. With the industry only predicted to deliver 33%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Shanghai Film'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 We Can Learn From Shanghai Film's P/S?

Shanghai Film's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 Shanghai Film maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Entertainment industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Shanghai Film you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.