When you see that almost half of the companies in the Metals and Mining industry in China have price-to-sales ratios (or "P/S") below 1.4x, GuoCheng Mining CO.,LTD (SZSE:000688) looks to be giving off strong sell signals with its 7.8x 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 Has GuoCheng MiningLTD Performed Recently?

GuoCheng MiningLTD certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is GuoCheng MiningLTD's Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 46% last year. The strong recent performance means it was also able to grow revenue by 61% in total over the last three years. 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 14%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in consideration, it's not hard to understand why GuoCheng MiningLTD's P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Final Word

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that GuoCheng MiningLTD 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.

Before you take the next step, you should know about the 3 warning signs for GuoCheng MiningLTD (1 shouldn't be ignored!) that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.