COL Group Co.,Ltd. (SZSE:300364) Stocks Shoot Up 41% But Its P/S Still Looks Reasonable

COL Group Co.,Ltd. (SZSE:300364) shares have had a really impressive month, gaining 41% after a shaky period beforehand. The last month tops off a massive increase of 150% in the last year.

Since its price has surged higher, when almost half of the companies in China's Media industry have price-to-sales ratios (or "P/S") below 2.6x, you may consider COL GroupLtd as a stock not worth researching with its 16.4x 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.

Check out our latest analysis for COL GroupLtd

How Has COL GroupLtd Performed Recently?

Recent revenue growth for COL GroupLtd has been in line with the industry. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think COL GroupLtd's 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?

COL GroupLtd's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.5% last year. This was backed up an excellent period prior to see revenue up by 52% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 65% as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 21% growth forecast for the broader industry.

In light of this, it's understandable that COL GroupLtd's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From COL GroupLtd's P/S?

The strong share price surge has lead to COL GroupLtd'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 COL GroupLtd maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Media industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. 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 2 warning signs for COL GroupLtd you should know about.

If you're unsure about the strength of COL GroupLtd'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.