Guangdong HEC Technology Holding Co., Ltd (SHSE:600673) shareholders have had their patience rewarded with a 51% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 95% in the last year.

Following the firm bounce in price, given close to half the companies operating in China's Metals and Mining industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider Guangdong HEC Technology Holding as a stock to potentially avoid with its 3.3x 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 Guangdong HEC Technology Holding's P/S Mean For Shareholders?

Recent revenue growth for Guangdong HEC Technology Holding has been in line with the industry. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Is There Enough Revenue Growth Forecasted For Guangdong HEC Technology Holding?

Guangdong HEC Technology Holding's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered a decent 4.8% gain to the company's revenues. Still, revenue has barely risen at all in aggregate from three years ago, which is not ideal. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to climb by 54% during the coming year according to the dual analysts following the company. With the industry only predicted to deliver 14%, the company is positioned for a stronger revenue result.

With this information, we can see why Guangdong HEC Technology Holding 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 Guangdong HEC Technology Holding's P/S?

Guangdong HEC Technology Holding shares have taken a big step in a northerly direction, but its P/S is elevated as a result. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look into Guangdong HEC Technology Holding shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 3 warning signs for Guangdong HEC Technology Holding (2 don't sit too well with us!) that you should be aware of.

If you're unsure about the strength of Guangdong HEC Technology 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.