Investors Appear Satisfied With Qingdao AInnovation Technology Group Co., Ltd.'s (HKG:2121) Prospects As Shares Rocket 31%

Qingdao AInnovation Technology Group Co., Ltd. (HKG:2121) shareholders are no doubt pleased to see that the share price has bounced 31% in the last month, although it is still struggling to make up recently lost ground. The last 30 days bring the annual gain to a very sharp 40%.

Since its price has surged higher, given around half the companies in Hong Kong's Software industry have price-to-sales ratios (or "P/S") below 1.7x, you may consider Qingdao AInnovation Technology Group as a stock to avoid entirely with its 6.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Qingdao AInnovation Technology Group

What Does Qingdao AInnovation Technology Group's Recent Performance Look Like?

Qingdao AInnovation Technology Group certainly has been doing a good job lately as it's been growing revenue more 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 Qingdao AInnovation Technology Group.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Qingdao AInnovation Technology Group would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 81%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 61% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 34% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Qingdao AInnovation Technology Group'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 Final Word

The strong share price surge has lead to Qingdao AInnovation Technology Group's P/S soaring as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Qingdao AInnovation Technology Group's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Qingdao AInnovation Technology Group is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Qingdao AInnovation Technology Group, 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.