Kunshan Huguang Auto Harness Co.,Ltd. (SHSE:605333) shares have continued their recent momentum with a 25% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 85%.

In spite of the firm bounce in price, there still wouldn't be many who think Kunshan Huguang Auto HarnessLtd's price-to-sales (or "P/S") ratio of 2x is worth a mention when the median P/S in China's Auto Components industry is similar at about 2.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Has Kunshan Huguang Auto HarnessLtd Performed Recently?

With revenue growth that's superior to most other companies of late, Kunshan Huguang Auto HarnessLtd has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, Kunshan Huguang Auto HarnessLtd would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 116% gain to the company's top line. The latest three year period has also seen an excellent 227% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 31% as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 24% growth forecast for the broader industry.

In light of this, it's curious that Kunshan Huguang Auto HarnessLtd's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Kunshan Huguang Auto HarnessLtd appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Despite enticing revenue growth figures that outpace the industry, Kunshan Huguang Auto HarnessLtd's P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

It is also worth noting that we have found 1 warning sign for Kunshan Huguang Auto HarnessLtd that you need to take into consideration.

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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