Despite an already strong run, BC Technology Group Limited (HKG:863) shares have been powering on, with a gain of 60% in the last thirty days. The last month tops off a massive increase of 204% in the last year.

Following the firm bounce in price, when almost half of the companies in Hong Kong's Capital Markets industry have price-to-sales ratios (or "P/S") below 2.5x, you may consider BC Technology Group as a stock not worth researching with its 19.5x 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.

See our latest analysis for BC Technology Group

How BC Technology Group Has Been Performing

Recent times have been pleasing for BC Technology Group as its revenue has risen in spite of the industry's average revenue going into reverse. The P/S ratio is probably high because investors think the company will continue to navigate the broader industry headwinds better than most. However, if this isn't the case, investors might get caught out paying too much for the stock.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like BC Technology Group's to be considered reasonable.

Retrospectively, the last year delivered a decent 7.1% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 15% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 40% during the coming year according to the two analysts following the company. That's shaping up to be similar to the 40% growth forecast for the broader industry.

In light of this, it's curious that BC Technology Group's P/S sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

What We Can Learn From BC Technology Group's P/S?

Shares in BC Technology Group 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.

Given BC Technology Group's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

Before you take the next step, you should know about the 2 warning signs for BC Technology Group (1 shouldn't be ignored!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.