Lianlian DigiTech Co., Ltd. (HKG:2598) Stocks Shoot Up 52% But Its P/S Still Looks Reasonable

Lianlian DigiTech Co., Ltd. (HKG:2598) shares have continued their recent momentum with a 52% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 46%.

Following the firm bounce in price, when almost half of the companies in Hong Kong's Diversified Financial industry have price-to-sales ratios (or "P/S") below 2x, you may consider Lianlian DigiTech as a stock not worth researching with its 10.5x 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 so lofty.

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Check out our latest analysis for Lianlian DigiTech

What Does Lianlian DigiTech's Recent Performance Look Like?

Recent times have been advantageous for Lianlian DigiTech 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. If not, then existing shareholders might be a little 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 Lianlian DigiTech.

Is There Enough Revenue Growth Forecasted For Lianlian DigiTech?

The only time you'd be truly comfortable seeing a P/S as steep as Lianlian DigiTech's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 28% last year. Pleasingly, revenue has also lifted 104% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 25% each year during the coming three years according to the four analysts following the company. That's shaping up to be materially higher than the 16% per annum growth forecast for the broader industry.

With this in mind, it's not hard to understand why Lianlian DigiTech'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.

The Bottom Line On Lianlian DigiTech's P/S

Lianlian DigiTech's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 Lianlian DigiTech shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You always need to take note of risks, for example - Lianlian DigiTech has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Lianlian DigiTech, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.