Revenues Tell The Story For China Express Airlines Co.,LTD (SZSE:002928) As Its Stock Soars 37%

China Express Airlines Co.,LTD (SZSE:002928) shareholders have had their patience rewarded with a 37% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 29% in the last twelve months.

After such a large jump in price, given close to half the companies operating in China's Airlines industry have price-to-sales ratios (or "P/S") below 0.9x, you may consider China Express AirlinesLTD as a stock to potentially avoid with its 1.6x P/S ratio. 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 China Express AirlinesLTD

How China Express AirlinesLTD Has Been Performing

Recent times have been advantageous for China Express AirlinesLTD as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is China Express AirlinesLTD's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like China Express AirlinesLTD's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 85% last year. As a result, it also grew revenue by 20% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 37% during the coming year according to the eight analysts following the company. With the industry only predicted to deliver 13%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why China Express AirlinesLTD's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On China Express AirlinesLTD's P/S

China Express AirlinesLTD'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 China Express AirlinesLTD maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Airlines industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for China Express AirlinesLTD with six simple checks will allow you to discover any risks that could be an issue.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.