Revenues Tell The Story For Beijing Huafeng Test & Control Technology Co.,Ltd. (SHSE:688200) As Its Stock Soars 60%

Beijing Huafeng Test & Control Technology Co.,Ltd. (SHSE:688200) shareholders would be excited to see that the share price has had a great month, posting a 60% gain and recovering from prior weakness. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Since its price has surged higher, Beijing Huafeng Test & Control TechnologyLtd's price-to-sales (or "P/S") ratio of 25.5x might make it look like a strong sell right now compared to other companies in the Semiconductor industry in China, where around half of the companies have P/S ratios below 6.2x and even P/S below 3x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Beijing Huafeng Test & Control TechnologyLtd

What Does Beijing Huafeng Test & Control TechnologyLtd's Recent Performance Look Like?

Beijing Huafeng Test & Control TechnologyLtd hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Beijing Huafeng Test & Control TechnologyLtd.

Is There Enough Revenue Growth Forecasted For Beijing Huafeng Test & Control TechnologyLtd?

Beijing Huafeng Test & Control TechnologyLtd'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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 24%. Regardless, revenue has managed to lift by a handy 28% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 54% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 36%, which is noticeably less attractive.

In light of this, it's understandable that Beijing Huafeng Test & Control TechnologyLtd's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

The strong share price surge has lead to Beijing Huafeng Test & Control TechnologyLtd's P/S soaring as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Beijing Huafeng Test & Control TechnologyLtd's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Having said that, be aware Beijing Huafeng Test & Control TechnologyLtd is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

If these risks are making you reconsider your opinion on Beijing Huafeng Test & Control TechnologyLtd, 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.