Revenues Not Telling The Story For Guangxi Oriental Intelligent Manufacturing Technology Co., Ltd. (SZSE:002175) After Shares Rise 27%

Guangxi Oriental Intelligent Manufacturing Technology Co., Ltd. (SZSE:002175) shares have continued their recent momentum with a 27% gain in the last month alone. The annual gain comes to 223% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Guangxi Oriental Intelligent Manufacturing Technology may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 22.6x, when you consider almost half of the companies in the Electronic industry in China have P/S ratios under 4.3x and even P/S lower than 2x aren't out of the ordinary. 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

How Has Guangxi Oriental Intelligent Manufacturing Technology Performed Recently?

Recent times have been quite advantageous for Guangxi Oriental Intelligent Manufacturing Technology as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Guangxi Oriental Intelligent Manufacturing Technology will help you shine a light on its historical performance.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Guangxi Oriental Intelligent Manufacturing Technology's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 32% last year. The latest three year period has also seen an excellent 37% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 26% 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. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. 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 Bottom Line On Guangxi Oriental Intelligent Manufacturing Technology's P/S

Shares in Guangxi Oriental Intelligent Manufacturing Technology have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

The fact that Guangxi Oriental Intelligent Manufacturing Technology currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. 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.

Plus, you should also learn about these 2 warning signs we've spotted with Guangxi Oriental Intelligent Manufacturing Technology (including 1 which is concerning).

If these risks are making you reconsider your opinion on Guangxi Oriental Intelligent Manufacturing Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.