Shandong Hi-Speed Holdings Group Limited (HKG:412) Looks Just Right With A 26% Price Jump

Despite an already strong run, Shandong Hi-Speed Holdings Group Limited (HKG:412) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 212% in the last year.

After such a large jump in price, given around half the companies in Hong Kong's Renewable Energy industry have price-to-sales ratios (or "P/S") below 0.9x, you may consider Shandong Hi-Speed Holdings Group as a stock to avoid entirely with its 17.1x 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.

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View our latest analysis for Shandong Hi-Speed Holdings Group

How Has Shandong Hi-Speed Holdings Group Performed Recently?

Recent times have been advantageous for Shandong Hi-Speed Holdings Group as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Shandong Hi-Speed Holdings Group's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

Shandong Hi-Speed Holdings Group's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. The latest three year period has seen an incredible overall rise in revenue, even though the last 12 month performance was only fair. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 11% each year during the coming three years according to the two analysts following the company. That's shaping up to be materially higher than the 7.3% each year growth forecast for the broader industry.

With this information, we can see why Shandong Hi-Speed Holdings Group is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Shandong Hi-Speed Holdings Group's P/S?

The strong share price surge has lead to Shandong Hi-Speed Holdings Group's P/S soaring as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into Shandong Hi-Speed Holdings Group shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Shandong Hi-Speed Holdings Group (1 is a bit concerning!) that you need to be mindful 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.