The Chengdu Xiling Power Science & Technology Incorporated Company (SZSE:300733) share price has done very well over the last month, posting an excellent gain of 39%. Notwithstanding the latest gain, the annual share price return of 7.7% isn't as impressive.

Although its price has surged higher, it's still not a stretch to say that Chengdu Xiling Power Science & Technology's price-to-sales (or "P/S") ratio of 2.4x right now seems quite "middle-of-the-road" compared to the Auto Components industry in China, where the median P/S ratio is around 2.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Chengdu Xiling Power Science & Technology's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Chengdu Xiling Power Science & Technology has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. 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?

The only time you'd be comfortable seeing a P/S like Chengdu Xiling Power Science & Technology's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 22%. The latest three year period has also seen an excellent 143% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 67% over the next year. With the industry only predicted to deliver 23%, the company is positioned for a stronger revenue result.

With this information, we find it interesting that Chengdu Xiling Power Science & Technology is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Chengdu Xiling Power Science & Technology's P/S Mean For Investors?

Its shares have lifted substantially and now Chengdu Xiling Power Science & Technology's P/S is back within range of the industry median. 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.

Looking at Chengdu Xiling Power Science & Technology's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Chengdu Xiling Power Science & Technology that you should be aware of.

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.