Hangzhou Changchuan Technology Co.,Ltd (SZSE:300604) Looks Just Right With A 58% Price Jump

Hangzhou Changchuan Technology Co.,Ltd (SZSE:300604) shareholders would be excited to see that the share price has had a great month, posting a 58% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 34%.

Since its price has surged higher, Hangzhou Changchuan TechnologyLtd may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 11.2x, since almost half of all companies in the Semiconductor industry in China have P/S ratios under 6.2x and even P/S lower than 3x are not unusual. 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.

Check out our latest analysis for Hangzhou Changchuan TechnologyLtd

How Has Hangzhou Changchuan TechnologyLtd Performed Recently?

Hangzhou Changchuan TechnologyLtd certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think Hangzhou Changchuan TechnologyLtd'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?

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

Retrospectively, the last year delivered an exceptional 18% gain to the company's top line. The latest three year period has also seen an excellent 119% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 48% over the next year. That's shaping up to be materially higher than the 36% growth forecast for the broader industry.

In light of this, it's understandable that Hangzhou Changchuan TechnologyLtd'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.

The Bottom Line On Hangzhou Changchuan TechnologyLtd's P/S

The strong share price surge has lead to Hangzhou Changchuan TechnologyLtd's P/S soaring as well. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Hangzhou Changchuan TechnologyLtd's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

You need to take note of risks, for example - Hangzhou Changchuan TechnologyLtd has 2 warning signs (and 1 which doesn't sit too well with us) we think 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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.