The Sundiro Holding Co., Ltd. (SZSE:000571) share price has done very well over the last month, posting an excellent gain of 28%. Looking back a bit further, it's encouraging to see the stock is up 50% in the last year.

After such a large jump in price, when almost half of the companies in China's Oil and Gas industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider Sundiro Holding as a stock probably not worth researching with its 3.1x 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 as high as it is.

What Does Sundiro Holding's Recent Performance Look Like?

For example, consider that Sundiro Holding's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is Sundiro Holding's Revenue Growth Trending?

In order to justify its P/S ratio, Sundiro Holding would need to produce impressive growth in excess of the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 18%. Regardless, revenue has managed to lift by a handy 19% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 5.4% shows it's about the same on an annualised basis.

With this information, we find it interesting that Sundiro Holding is trading at a high P/S compared to the industry. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as a continuation of recent revenue trends would weigh down the share price eventually.

The Bottom Line On Sundiro Holding's P/S

The large bounce in Sundiro Holding's shares has lifted the company's P/S handsomely. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We didn't expect to see Sundiro Holding trade at such a high P/S considering its last three-year revenue growth has only been on par with the rest of the industry. Right now we are uncomfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

You always need to take note of risks, for example - Sundiro Holding has 1 warning sign we think you should be aware of.

If you're unsure about the strength of Sundiro Holding's 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.