Pan Asia Environmental Protection Group Limited (HKG:556) shareholders have had their patience rewarded with a 33% share price jump in the last month. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

Since its price has surged higher, you could be forgiven for thinking Pan Asia Environmental Protection Group is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.5x, considering almost half the companies in Hong Kong's Commercial Services industry have P/S ratios below 0.4x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

How Has Pan Asia Environmental Protection Group Performed Recently?

With revenue growth that's exceedingly strong of late, Pan Asia Environmental Protection Group has been doing very well. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

Is There Enough Revenue Growth Forecasted For Pan Asia Environmental Protection Group?

The only time you'd be truly comfortable seeing a P/S as high as Pan Asia Environmental Protection Group's is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that the company grew revenue by an impressive 161% last year. The strong recent performance means it was also able to grow revenue by 230% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 5.6%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we can see why Pan Asia Environmental Protection Group is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What We Can Learn From Pan Asia Environmental Protection Group's P/S?

Pan Asia Environmental Protection Group's P/S is on the rise since its shares have risen strongly. 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 Pan Asia Environmental Protection Group maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

You should always think about risks. Case in point, we've spotted 4 warning signs for Pan Asia Environmental Protection Group you should be aware of, and 1 of them is a bit concerning.

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.