Chengdu M&S Electronics Technology Co.,Ltd.'s (SHSE:688311) price-to-sales (or "P/S") ratio of 15.6x might make it look like a strong sell right now compared to the Aerospace & Defense industry in China, where around half of the companies have P/S ratios below 8.4x and even P/S below 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Chengdu M&S Electronics TechnologyLtd

What Does Chengdu M&S Electronics TechnologyLtd's Recent Performance Look Like?

Chengdu M&S Electronics TechnologyLtd certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

Is There Enough Revenue Growth Forecasted For Chengdu M&S Electronics TechnologyLtd?

In order to justify its P/S ratio, Chengdu M&S Electronics TechnologyLtd would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 9.7% gain to the company's revenues. The latest three year period has also seen an excellent 56% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 100% as estimated by the two analysts watching the company. With the industry only predicted to deliver 47%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Chengdu M&S Electronics TechnologyLtd's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Chengdu M&S Electronics TechnologyLtd's P/S Mean For Investors?

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.

As we suspected, our examination of Chengdu M&S Electronics TechnologyLtd's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Chengdu M&S Electronics TechnologyLtd (of which 1 makes us a bit uncomfortable!) you should know about.

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.