Zhou Hei Ya International Holdings Company Limited (HKG:1458) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 31% in the last twelve months.

Following the firm bounce in price, you could be forgiven for thinking Zhou Hei Ya International Holdings is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.5x, considering almost half the companies in Hong Kong's Food industry have P/S ratios below 0.5x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

How Zhou Hei Ya International Holdings Has Been Performing

Recent times have been pleasing for Zhou Hei Ya International Holdings as its revenue has risen in spite of the industry's average revenue going into reverse. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

Is There Enough Revenue Growth Forecasted For Zhou Hei Ya International Holdings?

The only time you'd be truly comfortable seeing a P/S as high as Zhou Hei Ya International Holdings' is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. This isn't what shareholders were looking for as it means they've been left with a 5.2% decline in revenue over the last three years in total. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 6.0% during the coming year according to the nine analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 6.7%, which is not materially different.

With this information, we find it interesting that Zhou Hei Ya International Holdings is trading at a high P/S compared to the industry. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Zhou Hei Ya International Holdings' P/S Mean For Investors?

The large bounce in Zhou Hei Ya International Holdings' shares has lifted the company's P/S handsomely. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Analysts are forecasting Zhou Hei Ya International Holdings' revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

Plus, you should also learn about this 1 warning sign we've spotted with Zhou Hei Ya International Holdings.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.