Despite an already strong run, China Wantian Holdings Limited (HKG:1854) shares have been powering on, with a gain of 34% in the last thirty days. The last month tops off a massive increase of 134% in the last year.

After such a large jump in price, given around half the companies in Hong Kong's Consumer Retailing industry have price-to-sales ratios (or "P/S") below 0.5x, you may consider China Wantian Holdings as a stock to avoid entirely with its 10.6x P/S ratio. 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.

Check out our latest analysis for China Wantian Holdings

How Has China Wantian Holdings Performed Recently?

With revenue growth that's exceedingly strong of late, China Wantian Holdings has been doing very well. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors' willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is China Wantian Holdings' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as China Wantian Holdings' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 104% gain to the company's top line. Pleasingly, revenue has also lifted 112% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 12%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we can see why China Wantian Holdings is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Key Takeaway

Shares in China Wantian Holdings have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 China Wantian Holdings maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider and we've discovered 2 warning signs for China Wantian Holdings (1 is a bit unpleasant!) that you should be aware of before investing here.

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

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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.