Guangzhou Hexin Instrument Co.,Ltd. (SHSE:688622) Looks Just Right With A 29% Price Jump

Guangzhou Hexin Instrument Co.,Ltd. (SHSE:688622) shares have continued their recent momentum with a 29% gain in the last month alone. The last month tops off a massive increase of 282% in the last year.

Since its price has surged higher, Guangzhou Hexin InstrumentLtd may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 19.3x, since almost half of all companies in the Electronic industry in China have P/S ratios under 4.4x and even P/S lower than 2x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Guangzhou Hexin InstrumentLtd

What Does Guangzhou Hexin InstrumentLtd's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Guangzhou Hexin InstrumentLtd's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. 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 Guangzhou Hexin InstrumentLtd will help you uncover what's on the horizon.

How Is Guangzhou Hexin InstrumentLtd's Revenue Growth Trending?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 30%. As a result, revenue from three years ago have also fallen 32% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 171% over the next year. With the industry only predicted to deliver 26%, the company is positioned for a stronger revenue result.

With this information, we can see why Guangzhou Hexin InstrumentLtd is trading at such a high P/S compared to the industry. 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 Guangzhou Hexin InstrumentLtd'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.

We've established that Guangzhou Hexin InstrumentLtd maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Electronic industry, as expected. 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.

Plus, you should also learn about this 1 warning sign we've spotted with Guangzhou Hexin InstrumentLtd.

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.