Guangzhou Frontop Digital Creative Technology Corporation (SZSE:301313) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 33% over that time.

Following the firm bounce in price, you could be forgiven for thinking Guangzhou Frontop Digital Creative Technology is a stock not worth researching with a price-to-sales ratios (or "P/S") of 4.2x, considering almost half the companies in China's Media industry have P/S ratios below 2.4x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

How Has Guangzhou Frontop Digital Creative Technology Performed Recently?

Guangzhou Frontop Digital Creative Technology's revenue growth of late has been pretty similar to most other companies. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Guangzhou Frontop Digital Creative Technology's to be considered reasonable.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 19% overall from three years ago. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 51% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 13%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Guangzhou Frontop Digital Creative Technology's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Guangzhou Frontop Digital Creative Technology's P/S Mean For Investors?

Guangzhou Frontop Digital Creative Technology shares have taken a big step in a northerly direction, but its P/S is elevated as a result. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look into Guangzhou Frontop Digital Creative Technology shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 1 warning sign for Guangzhou Frontop Digital Creative Technology that you need to take into consideration.

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.