The Shanghai Xinnanyang Only Education & Technology Co.,Ltd (SHSE:600661) share price has done very well over the last month, posting an excellent gain of 25%. Looking back a bit further, it's encouraging to see the stock is up 41% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Shanghai Xinnanyang Only Education & TechnologyLtd's P/S ratio of 3.3x, since the median price-to-sales (or "P/S") ratio for the Consumer Services industry in China is about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Shanghai Xinnanyang Only Education & TechnologyLtd's Recent Performance Look Like?

Recent times have been advantageous for Shanghai Xinnanyang Only Education & TechnologyLtd as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Shanghai Xinnanyang Only Education & TechnologyLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 41%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 44% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 38% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 33% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Shanghai Xinnanyang Only Education & TechnologyLtd's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Shanghai Xinnanyang Only Education & TechnologyLtd's P/S Mean For Investors?

Shanghai Xinnanyang Only Education & TechnologyLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Despite enticing revenue growth figures that outpace the industry, Shanghai Xinnanyang Only Education & TechnologyLtd's P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for Shanghai Xinnanyang Only Education & TechnologyLtd that you should be aware of.

If you're unsure about the strength of Shanghai Xinnanyang Only Education & TechnologyLtd'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.

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