Fortior Technology (Shenzhen) Co., Ltd. (SHSE:688279) Stock Rockets 30% As Investors Are Less Pessimistic Than Expected

Fortior Technology (Shenzhen) Co., Ltd. (SHSE:688279) shares have continued their recent momentum with a 30% gain in the last month alone. The annual gain comes to 162% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Fortior Technology (Shenzhen) may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 39.5x, when you consider almost half of the companies in the Semiconductor industry in China have P/S ratios under 7.1x and even P/S lower than 3x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Fortior Technology (Shenzhen)

How Fortior Technology (Shenzhen) Has Been Performing

Fortior Technology (Shenzhen) certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little 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 Fortior Technology (Shenzhen).

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

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Fortior Technology (Shenzhen)'s to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 52% last year. The strong recent performance means it was also able to grow revenue by 70% 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 33% as estimated by the three analysts watching the company. With the industry predicted to deliver 49% growth, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that Fortior Technology (Shenzhen)'s P/S is outpacing its industry peers. 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 We Can Learn From Fortior Technology (Shenzhen)'s P/S?

Fortior Technology (Shenzhen)'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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Fortior Technology (Shenzhen), this doesn't appear to be impacting the P/S in the slightest. 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Fortior Technology (Shenzhen) (of which 1 shouldn't be ignored!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.