Suwen Electric Energy Technology Co.,Ltd. (SZSE:300982) shares have had a really impressive month, gaining 44% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 30% in the last twelve months.

Following the firm bounce in price, when almost half of the companies in China's Construction industry have price-to-sales ratios (or "P/S") below 1.2x, you may consider Suwen Electric Energy TechnologyLtd as a stock probably not worth researching with its 2x 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.

How Suwen Electric Energy TechnologyLtd Has Been Performing

While the industry has experienced revenue growth lately, Suwen Electric Energy TechnologyLtd's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, 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 Suwen Electric Energy TechnologyLtd's Revenue Growth Trending?

Suwen Electric Energy TechnologyLtd's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than 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 15%. Still, the latest three year period has seen an excellent 45% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 65% over the next year. That's shaping up to be materially higher than the 14% growth forecast for the broader industry.

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

What We Can Learn From Suwen Electric Energy TechnologyLtd's P/S?

The large bounce in Suwen Electric Energy TechnologyLtd's shares has lifted the company's P/S handsomely. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Suwen Electric Energy TechnologyLtd maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Construction industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Suwen Electric Energy TechnologyLtd (of which 1 can't be ignored!) you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.