Despite an already strong run, Qingdao Guolin Technology Group Co.,Ltd. (SZSE:300786) shares have been powering on, with a gain of 33% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 12% over that time.

After such a large jump in price, when almost half of the companies in China's Electrical industry have price-to-sales ratios (or "P/S") below 2.4x, you may consider Qingdao Guolin Technology GroupLtd as a stock not worth researching with its 6.7x P/S ratio. 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.

What Does Qingdao Guolin Technology GroupLtd's Recent Performance Look Like?

Recent times have been advantageous for Qingdao Guolin Technology GroupLtd as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

In order to justify its P/S ratio, Qingdao Guolin Technology GroupLtd would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 35%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 6.1% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 82% as estimated by the one analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 26%, which is noticeably less attractive.

In light of this, it's understandable that Qingdao Guolin Technology GroupLtd's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Qingdao Guolin Technology GroupLtd's P/S has grown nicely over the last month thanks to a handy boost in the share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look into Qingdao Guolin Technology GroupLtd 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. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Plus, you should also learn about this 1 warning sign we've spotted with Qingdao Guolin Technology GroupLtd.

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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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.