Guangxi Oriental Intelligent Manufacturing Technology Co., Ltd.'s (SZSE:002175) 138% Price Boost Is Out Of Tune With Revenues

Despite an already strong run, Guangxi Oriental Intelligent Manufacturing Technology Co., Ltd. (SZSE:002175) shares have been powering on, with a gain of 138% in the last thirty days. The last month tops off a massive increase of 151% in the last year.

Following the firm bounce in price, Guangxi Oriental Intelligent Manufacturing Technology's price-to-sales (or "P/S") ratio of 28.4x might make it look like a strong sell right now compared to other companies in the Electronic industry in China, where around half of the companies have P/S ratios below 4.6x and even P/S below 2x 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 Guangxi Oriental Intelligent Manufacturing Technology

What Does Guangxi Oriental Intelligent Manufacturing Technology's Recent Performance Look Like?

Guangxi Oriental Intelligent Manufacturing Technology certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Guangxi Oriental Intelligent Manufacturing Technology's earnings, revenue and cash flow.

How Is Guangxi Oriental Intelligent Manufacturing Technology's Revenue Growth Trending?

Guangxi Oriental Intelligent Manufacturing Technology'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.

If we review the last year of revenue growth, the company posted a terrific increase of 32%. Pleasingly, revenue has also lifted 37% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 27% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it concerning that Guangxi Oriental Intelligent Manufacturing Technology is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Key Takeaway

Guangxi Oriental Intelligent Manufacturing Technology's P/S has grown nicely over the last month thanks to a handy boost in the share price. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Guangxi Oriental Intelligent Manufacturing Technology revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You always need to take note of risks, for example - Guangxi Oriental Intelligent Manufacturing Technology has 2 warning signs we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.