Shanghai @hub Co.,Ltd.'s (SHSE:603881) 36% Share Price Surge Not Quite Adding Up

The Shanghai @hub Co.,Ltd. (SHSE:603881) share price has done very well over the last month, posting an excellent gain of 36%. Looking further back, the 10% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, Shanghai @hubLtd may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 6.7x, since almost half of all companies in the IT industry in China have P/S ratios under 4.3x and even P/S lower than 2x are not unusual. 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 Shanghai @hubLtd

What Does Shanghai @hubLtd's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Shanghai @hubLtd has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For Shanghai @hubLtd?

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

If we review the last year of revenue growth, the company posted a worthy increase of 5.7%. Pleasingly, revenue has also lifted 48% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 11% per year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 14% per year, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that Shanghai @hubLtd'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 Shanghai @hubLtd's P/S?

Shanghai @hubLtd'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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Shanghai @hubLtd, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. At these price levels, investors should remain cautious, particularly if things don't improve.

It is also worth noting that we have found 1 warning sign for Shanghai @hubLtd that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.