Shenzhen Lihexing Co.,Ltd.'s (SZSE:301013) 43% Jump Shows Its Popularity With Investors

The Shenzhen Lihexing Co.,Ltd. (SZSE:301013) share price has done very well over the last month, posting an excellent gain of 43%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 14% over that time.

Following the firm bounce in price, Shenzhen LihexingLtd's price-to-sales (or "P/S") ratio of 6x might make it look like a sell right now compared to the wider Electronic industry in China, where around half of the companies have P/S ratios below 4x and even P/S below 2x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for Shenzhen LihexingLtd

What Does Shenzhen LihexingLtd's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Shenzhen LihexingLtd has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen LihexingLtd.

What Are Revenue Growth Metrics Telling Us About The High P/S?

Shenzhen LihexingLtd's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered an exceptional 59% gain to the company's top line. As a result, it also grew revenue by 22% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 111% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 26%, which is noticeably less attractive.

With this information, we can see why Shenzhen LihexingLtd 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 Final Word

Shenzhen LihexingLtd's P/S is on the rise since its shares have risen strongly. 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.

We've established that Shenzhen LihexingLtd 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. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Shenzhen LihexingLtd that 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.