The Qinghai Jinrui Mineral Development Co., Ltd (SHSE:600714) share price has done very well over the last month, posting an excellent gain of 62%. Looking back a bit further, it's encouraging to see the stock is up 26% in the last year.

Following the firm bounce in price, given around half the companies in China's Oil and Gas industry have price-to-sales ratios (or "P/S") below 1.5x, you may consider Qinghai Jinrui Mineral Development as a stock to avoid entirely with its 11.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

How Qinghai Jinrui Mineral Development Has Been Performing

As an illustration, revenue has deteriorated at Qinghai Jinrui Mineral Development over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

How Is Qinghai Jinrui Mineral Development's Revenue Growth Trending?

In order to justify its P/S ratio, Qinghai Jinrui Mineral Development would need to produce outstanding growth that's well in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.6%. Even so, admirably revenue has lifted 57% 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.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 6.4% shows it's noticeably more attractive.

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

The Bottom Line On Qinghai Jinrui Mineral Development's P/S

The strong share price surge has lead to Qinghai Jinrui Mineral Development'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.

It's no surprise that Qinghai Jinrui Mineral Development can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 3 warning signs for Qinghai Jinrui Mineral Development that we have uncovered.

If you're unsure about the strength of Qinghai Jinrui Mineral Development's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.