Subdued Growth No Barrier To Shanghai Qingpu Fire-Fighting Equipment Co., Ltd. (HKG:8115) With Shares Advancing 266%

Shanghai Qingpu Fire-Fighting Equipment Co., Ltd. (HKG:8115) shares have continued their recent momentum with a 266% gain in the last month alone. This latest share price bounce rounds out a remarkable 1,016% gain over the last twelve months.

Since its price has surged higher, you could be forgiven for thinking Shanghai Qingpu Fire-Fighting Equipment is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 10.5x, considering almost half the companies in Hong Kong's Electrical industry have P/S ratios below 0.5x. 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 Shanghai Qingpu Fire-Fighting Equipment

What Does Shanghai Qingpu Fire-Fighting Equipment's P/S Mean For Shareholders?

Shanghai Qingpu Fire-Fighting Equipment has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. 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 Shanghai Qingpu Fire-Fighting Equipment, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Shanghai Qingpu Fire-Fighting Equipment's Revenue Growth Trending?

In order to justify its P/S ratio, Shanghai Qingpu Fire-Fighting Equipment would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 9.2% gain to the company's revenues. Still, revenue has barely risen at all in aggregate from three years ago, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 21% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that Shanghai Qingpu Fire-Fighting Equipment's P/S sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Final Word

Shares in Shanghai Qingpu Fire-Fighting Equipment have seen a strong upwards swing lately, which has really helped boost its P/S figure. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Shanghai Qingpu Fire-Fighting Equipment revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Shanghai Qingpu Fire-Fighting Equipment (of which 1 shouldn't be ignored!) you should know about.

If you're unsure about the strength of Shanghai Qingpu Fire-Fighting Equipment's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.