Shanghai Tianchen Co.,Ltd (SHSE:600620) shares have continued their recent momentum with a 25% gain in the last month alone. But the last month did very little to improve the 52% share price decline over the last year.

Following the firm bounce in price, when almost half of the companies in China's Transportation industry have price-to-sales ratios (or "P/S") below 2.8x, you may consider Shanghai TianchenLtd as a stock not worth researching with its 15.4x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

How Has Shanghai TianchenLtd Performed Recently?

For instance, Shanghai TianchenLtd's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

How Is Shanghai TianchenLtd's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 29% decrease to the company's top line. In spite of this, the company still managed to deliver immense revenue growth over the last three years. Accordingly, shareholders will be pleased, but also have some serious questions to ponder about the last 12 months.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 6.2% shows it's noticeably more attractive.

With this in consideration, it's not hard to understand why Shanghai TianchenLtd's P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What Does Shanghai TianchenLtd's P/S Mean For Investors?

Shanghai TianchenLtd's P/S has grown nicely over the last month thanks to a handy boost in the share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Shanghai TianchenLtd maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Before you take the next step, you should know about the 4 warning signs for Shanghai TianchenLtd (2 make us uncomfortable!) 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.