Guangxi Oriental Intelligent Manufacturing Technology Co., Ltd. (SZSE:002175) shares have continued their recent momentum with a 138% gain in the last month alone. The annual gain comes to 151% following the latest surge, making investors sit up and take notice.

After such a large jump in price, Guangxi Oriental Intelligent Manufacturing Technology may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 28.4x, since almost half of all companies in the Electronic industry in China have P/S ratios under 4.6x and even P/S lower than 2x are not unusual. 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.

How Has Guangxi Oriental Intelligent Manufacturing Technology Performed Recently?

With revenue growth that's exceedingly strong of late, Guangxi Oriental Intelligent Manufacturing Technology has been doing very well. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

In order to justify its P/S ratio, Guangxi Oriental Intelligent Manufacturing Technology would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 32% gain to the company's top line. The latest three year period has also seen an excellent 37% 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.

This is in contrast to the rest of the industry, which is expected to grow by 27% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that Guangxi Oriental Intelligent Manufacturing Technology's P/S sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Guangxi Oriental Intelligent Manufacturing Technology's P/S

The strong share price surge has lead to Guangxi Oriental Intelligent Manufacturing Technology's P/S soaring as well. 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.

The fact that Guangxi Oriental Intelligent Manufacturing Technology currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. Right now we aren't comfortable 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 markedly, it's very challenging to accept these the share price as being reasonable.

Plus, you should also learn about these 2 warning signs we've spotted with Guangxi Oriental Intelligent Manufacturing Technology.

If you're unsure about the strength of Guangxi Oriental Intelligent Manufacturing Technology'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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