Despite an already strong run, Suzhou Electrical Apparatus Science Academy Co., Ltd. (SZSE:300215) shares have been powering on, with a gain of 26% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 5.3% isn't as impressive.

After such a large jump in price, you could be forgiven for thinking Suzhou Electrical Apparatus Science Academy is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 6.1x, considering almost half the companies in China's Professional Services industry have P/S ratios below 3.1x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

How Suzhou Electrical Apparatus Science Academy Has Been Performing

Suzhou Electrical Apparatus Science Academy has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the reasonable revenue performance to beat most other companies over the coming period, which has increased investors' willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is Suzhou Electrical Apparatus Science Academy's Revenue Growth Trending?

Suzhou Electrical Apparatus Science Academy'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.

If we review the last year of revenue growth, the company posted a worthy increase of 2.5%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 19% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 45% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we find it worrying that Suzhou Electrical Apparatus Science Academy's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Suzhou Electrical Apparatus Science Academy's P/S?

Suzhou Electrical Apparatus Science Academy'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.

We've established that Suzhou Electrical Apparatus Science Academy currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Plus, you should also learn about these 4 warning signs we've spotted with Suzhou Electrical Apparatus Science Academy (including 1 which is concerning).

If you're unsure about the strength of Suzhou Electrical Apparatus Science Academy'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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