Guangdong Insight Brand Marketing Group Co.,Ltd. (SZSE:300781) shares have continued their recent momentum with a 27% gain in the last month alone. The annual gain comes to 121% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, you could be forgiven for thinking Guangdong Insight Brand Marketing GroupLtd is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 14.6x, considering almost half the companies in China's Media industry have P/S ratios below 2.6x. 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 Guangdong Insight Brand Marketing GroupLtd Has Been Performing

As an illustration, revenue has deteriorated at Guangdong Insight Brand Marketing GroupLtd over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Do Revenue Forecasts Match The High P/S Ratio?

Guangdong Insight Brand Marketing GroupLtd's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much 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 11%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 65% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 19% shows it's about the same on an annualised basis.

With this in mind, we find it intriguing that Guangdong Insight Brand Marketing GroupLtd's P/S exceeds that of its industry peers. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as a continuation of recent revenue trends would weigh down the share price eventually.

What Does Guangdong Insight Brand Marketing GroupLtd's P/S Mean For Investors?

Shares in Guangdong Insight Brand Marketing GroupLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

We didn't expect to see Guangdong Insight Brand Marketing GroupLtd trade at such a high P/S considering its last three-year revenue growth has only been on par with the rest of the industry. Right now we are uncomfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Guangdong Insight Brand Marketing GroupLtd is showing 2 warning signs in our investment analysis, you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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