Guangdong Modern High-tech Fiber Co., Ltd (SZSE:300876) shares have continued their recent momentum with a 31% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 17% in the last twelve months.

Since its price has surged higher, you could be forgiven for thinking Guangdong Modern High-tech Fiber is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 4.3x, considering almost half the companies in China's Chemicals industry have P/S ratios below 2.2x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

What Does Guangdong Modern High-tech Fiber's Recent Performance Look Like?

Recent times have been pleasing for Guangdong Modern High-tech Fiber as its revenue has risen in spite of the industry's average revenue going into reverse. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Is There Enough Revenue Growth Forecasted For Guangdong Modern High-tech Fiber?

The only time you'd be truly comfortable seeing a P/S as steep as Guangdong Modern High-tech Fiber'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 24% last year. Revenue has also lifted 22% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 13% during the coming year according to the only analyst following the company. That's shaping up to be materially lower than the 23% growth forecast for the broader industry.

With this information, we find it concerning that Guangdong Modern High-tech Fiber is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Guangdong Modern High-tech Fiber's P/S?

Guangdong Modern High-tech Fiber'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.

We've concluded that Guangdong Modern High-tech Fiber currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 5 warning signs for Guangdong Modern High-tech Fiber (4 make us uncomfortable!) that you need to take into consideration.

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.