Market Participants Recognise iMotion Automotive Technology (Suzhou) Co., Ltd.'s (HKG:1274) Revenues Pushing Shares 29% Higher

Despite an already strong run, iMotion Automotive Technology (Suzhou) Co., Ltd. (HKG:1274) shares have been powering on, with a gain of 29% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 45% in the last twelve months.

Since its price has surged higher, when almost half of the companies in Hong Kong's Auto Components industry have price-to-sales ratios (or "P/S") below 0.8x, you may consider iMotion Automotive Technology (Suzhou) as a stock not worth researching with its 3x 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.

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See our latest analysis for iMotion Automotive Technology (Suzhou)

What Does iMotion Automotive Technology (Suzhou)'s P/S Mean For Shareholders?

Recent times haven't been great for iMotion Automotive Technology (Suzhou) as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on iMotion Automotive Technology (Suzhou).

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

There's an inherent assumption that a company should far outperform the industry for P/S ratios like iMotion Automotive Technology (Suzhou)'s to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 2.6% last year. While this performance is only fair, the company was still able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 52% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 18% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why iMotion Automotive Technology (Suzhou)'s P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From iMotion Automotive Technology (Suzhou)'s P/S?

Shares in iMotion Automotive Technology (Suzhou) have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 look into iMotion Automotive Technology (Suzhou) shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for iMotion Automotive Technology (Suzhou) you should be aware of, and 1 of them shouldn't be ignored.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.