Shenzhen Urban Transport Planning Center Co., Ltd. (SZSE:301091) shares have had a really impressive month, gaining 28% after a shaky period beforehand. The last month tops off a massive increase of 126% in the last year.

After such a large jump in price, you could be forgiven for thinking Shenzhen Urban Transport Planning Center is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 9.7x, considering almost half the companies in China's Professional Services industry have P/S ratios below 2.7x. 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 Shenzhen Urban Transport Planning Center Has Been Performing

With revenue growth that's inferior to most other companies of late, Shenzhen Urban Transport Planning Center has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Shenzhen Urban Transport Planning Center'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.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Regardless, revenue has managed to lift by a handy 12% in aggregate from three years ago, thanks to the earlier period of growth. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to climb by 51% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 31%, which is noticeably less attractive.

With this information, we can see why Shenzhen Urban Transport Planning Center is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Shenzhen Urban Transport Planning Center's P/S has grown nicely over the last month thanks to a handy boost in the share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look into Shenzhen Urban Transport Planning Center shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Shenzhen Urban Transport Planning Center (including 1 which can't be ignored).

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.