After Leaping 131% Dazhong Transportation (Group) Co., Ltd. (SHSE:600611) Shares Are Not Flying Under The Radar

Despite an already strong run, Dazhong Transportation (Group) Co., Ltd. (SHSE:600611) shares have been powering on, with a gain of 131% in the last thirty days. The annual gain comes to 202% following the latest surge, making investors sit up and take notice.

After such a large jump in price, when almost half of the companies in China's Transportation industry have price-to-sales ratios (or "P/S") below 2.4x, you may consider Dazhong Transportation (Group) as a stock not worth researching with its 5.1x P/S ratio. 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 Dazhong Transportation (Group)

What Does Dazhong Transportation (Group)'s P/S Mean For Shareholders?

Dazhong Transportation (Group) certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Although there are no analyst estimates available for Dazhong Transportation (Group), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Dazhong Transportation (Group)?

Dazhong Transportation (Group)'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 70%. Pleasingly, revenue has also lifted 69% 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.

When compared to the industry's one-year growth forecast of 6.3%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's understandable that Dazhong Transportation (Group)'s P/S sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What Does Dazhong Transportation (Group)'s P/S Mean For Investors?

Dazhong Transportation (Group)'s P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 Dazhong Transportation (Group) maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Having said that, be aware Dazhong Transportation (Group) is showing 3 warning signs in our investment analysis, and 2 of those are significant.

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.