There's Reason For Concern Over Zhengzhou Tiamaes Technology Co.,Ltd's (SZSE:300807) Massive 36% Price Jump

Zhengzhou Tiamaes Technology Co.,Ltd (SZSE:300807) shares have had a really impressive month, gaining 36% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 7.7% isn't as attractive.

Since its price has surged higher, Zhengzhou Tiamaes TechnologyLtd may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 12.5x, since almost half of all companies in the Electronic industry in China have P/S ratios under 4.2x 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.

See our latest analysis for Zhengzhou Tiamaes TechnologyLtd

How Has Zhengzhou Tiamaes TechnologyLtd Performed Recently?

As an illustration, revenue has deteriorated at Zhengzhou Tiamaes TechnologyLtd over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

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 Zhengzhou Tiamaes TechnologyLtd's earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Zhengzhou Tiamaes TechnologyLtd would need to produce outstanding growth that's well in excess of the industry.

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 35%. As a result, revenue from three years ago have also fallen 2.7% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 27% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's alarming that Zhengzhou Tiamaes TechnologyLtd's P/S sits above the majority of other companies. 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. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Zhengzhou Tiamaes TechnologyLtd's P/S Mean For Investors?

The strong share price surge has lead to Zhengzhou Tiamaes 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.

Our examination of Zhengzhou Tiamaes TechnologyLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Zhengzhou Tiamaes TechnologyLtd that you need to be mindful of.

If you're unsure about the strength of Zhengzhou Tiamaes TechnologyLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.