QuakeSafe Technologies Co., Ltd.'s (SZSE:300767) price-to-sales (or "P/S") ratio of 4.6x may look like a poor investment opportunity when you consider close to half the companies in the Basic Materials industry in China have P/S ratios below 1.3x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for QuakeSafe Technologies

What Does QuakeSafe Technologies' P/S Mean For Shareholders?

The recently shrinking revenue for QuakeSafe Technologies has been in line with the industry. Perhaps the market is expecting the company to reverse its fortunes and beat out a struggling industry in the future, elevating the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is QuakeSafe Technologies' Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like QuakeSafe Technologies' to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 9.2%. Even so, admirably revenue has lifted 43% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 40% over the next year. That's shaping up to be materially higher than the 17% growth forecast for the broader industry.

In light of this, it's understandable that QuakeSafe Technologies' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does QuakeSafe Technologies' P/S Mean For Investors?

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.

We've established that QuakeSafe Technologies maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Basic Materials 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for QuakeSafe Technologies that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.