Shanghai DOBE Cultural & Creative Industry Development (Group)Co. LTD. (SZSE:300947) shares have had a really impressive month, gaining 48% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 36% in the last year.

Since its price has surged higher, given close to half the companies operating in China's Real Estate industry have price-to-sales ratios (or "P/S") below 1.9x, you may consider Shanghai DOBE Cultural & Creative Industry Development (Group)Co as a stock to potentially avoid with its 2.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

What Does Shanghai DOBE Cultural & Creative Industry Development (Group)Co's Recent Performance Look Like?

Recent times have been quite advantageous for Shanghai DOBE Cultural & Creative Industry Development (Group)Co as its revenue has been rising very briskly. 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 Shanghai DOBE Cultural & Creative Industry Development (Group)Co's Revenue Growth Trending?

In order to justify its P/S ratio, Shanghai DOBE Cultural & Creative Industry Development (Group)Co would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 43% gain to the company's top line. The latest three year period has also seen an excellent 43% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that to the industry, which is only predicted to deliver 11% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we can see why Shanghai DOBE Cultural & Creative Industry Development (Group)Co 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 Final Word

Shanghai DOBE Cultural & Creative Industry Development (Group)Co's P/S is on the rise since its shares have risen strongly. 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.

As we suspected, our examination of Shanghai DOBE Cultural & Creative Industry Development (Group)Co revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. If recent medium-term revenue trends continue, 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 and we've discovered 3 warning signs for Shanghai DOBE Cultural & Creative Industry Development (Group)Co (2 shouldn't be ignored!) that you should be aware of before investing here.

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.