Cornerstone Technologies Holdings Limited (HKG:8391) shareholders have had their patience rewarded with a 27% 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 26% over that time.

Following the firm bounce in price, when almost half of the companies in Hong Kong's Commercial Services industry have price-to-sales ratios (or "P/S") below 0.4x, you may consider Cornerstone Technologies Holdings as a stock not worth researching with its 7.7x 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.

How Cornerstone Technologies Holdings Has Been Performing

With revenue growth that's exceedingly strong of late, Cornerstone Technologies Holdings has been doing very well. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

Do Revenue Forecasts Match The High P/S Ratio?

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

Taking a look back first, we see that the company grew revenue by an impressive 145% last year. The latest three year period has also seen an excellent 51% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

When compared to the industry's one-year growth forecast of 6.2%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in consideration, it's not hard to understand why Cornerstone Technologies Holdings' P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What We Can Learn From Cornerstone Technologies Holdings' P/S?

Cornerstone Technologies Holdings' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 Cornerstone Technologies Holdings 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. 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 settle on your opinion, we've discovered 3 warning signs for Cornerstone Technologies Holdings (1 is potentially serious!) that you should be aware of.

If these risks are making you reconsider your opinion on Cornerstone Technologies Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com