Despite an already strong run, Shenzhen Urban Transport Planning Center Co., Ltd. (SZSE:301091) shares have been powering on, with a gain of 31% in the last thirty days. The last month tops off a massive increase of 197% in the last year.

Following the firm bounce in price, Shenzhen Urban Transport Planning Center may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 18x, when you consider almost half of the companies in the Professional Services industry in China have P/S ratios under 4x and even P/S lower than 1.8x aren't out of the ordinary. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

What Does Shenzhen Urban Transport Planning Center's Recent Performance Look Like?

Shenzhen Urban Transport Planning Center hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Is There Enough Revenue Growth Forecasted For Shenzhen Urban Transport Planning Center?

In order to justify its P/S ratio, Shenzhen Urban Transport Planning Center would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 1.5% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 9.1% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 37% during the coming year according to the dual analysts following the company. With the industry only predicted to deliver 28%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Shenzhen Urban Transport Planning Center's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Shares in Shenzhen Urban Transport Planning Center have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

As we suspected, our examination of Shenzhen Urban Transport Planning Center's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Shenzhen Urban Transport Planning Center that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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