Zhejiang Leapmotor Technology Co., Ltd. (HKG:9863) Looks Just Right With A 42% Price Jump

The Zhejiang Leapmotor Technology Co., Ltd. (HKG:9863) share price has done very well over the last month, posting an excellent gain of 42%. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Following the firm bounce in price, given around half the companies in Hong Kong's Auto industry have price-to-sales ratios (or "P/S") below 0.6x, you may consider Zhejiang Leapmotor Technology as a stock to avoid entirely with its 3.3x 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.

Check out our latest analysis for Zhejiang Leapmotor Technology

What Does Zhejiang Leapmotor Technology's P/S Mean For Shareholders?

Zhejiang Leapmotor Technology certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Zhejiang Leapmotor Technology's future stacks up against the industry? In that case, our free report is a great place to start.

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 Zhejiang Leapmotor Technology's to be considered reasonable.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The amazing performance means it was also able to deliver huge revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 73% per year as estimated by the six analysts watching the company. With the industry only predicted to deliver 26% per annum, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Zhejiang Leapmotor Technology'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 Zhejiang Leapmotor Technology's P/S?

Shares in Zhejiang Leapmotor Technology 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.

We've established that Zhejiang Leapmotor Technology maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Auto industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - Zhejiang Leapmotor Technology has 1 warning sign we think you should be aware of.

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.