Despite an already strong run, Kairuide Holding Co.,Ltd. (SZSE:002072) shares have been powering on, with a gain of 42% in the last thirty days. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 7.8% in the last twelve months.

After such a large jump in price, you could be forgiven for thinking Kairuide HoldingLtd is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 4x, considering almost half the companies in China's Trade Distributors industry have P/S ratios below 0.8x. 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 Kairuide HoldingLtd Has Been Performing

Recent times have been quite advantageous for Kairuide HoldingLtd as its revenue has been rising very briskly. 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.

How Is Kairuide HoldingLtd's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 64%. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 13%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's understandable that Kairuide HoldingLtd's P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What We Can Learn From Kairuide HoldingLtd's P/S?

Kairuide HoldingLtd's P/S has grown nicely over the last month thanks to a handy boost in the share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Kairuide HoldingLtd 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. Unless the recent medium-term 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 Kairuide HoldingLtd that you should be aware of.

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

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