The Henan Carve Electronics Technology Co., Ltd. (SZSE:301182) share price has done very well over the last month, posting an excellent gain of 110%. The last 30 days bring the annual gain to a very sharp 78%.

Following the firm bounce in price, Henan Carve Electronics Technology's price-to-sales (or "P/S") ratio of 5.4x might make it look like a sell right now compared to the wider Electronic industry in China, where around half of the companies have P/S ratios below 4.1x and even P/S below 2x are quite common. 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.

What Does Henan Carve Electronics Technology's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Henan Carve Electronics Technology has been doing very well. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors' willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

How Is Henan Carve Electronics Technology's Revenue Growth Trending?

In order to justify its P/S ratio, Henan Carve Electronics Technology would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 43% gain to the company's top line. The latest three year period has also seen a 23% overall rise in revenue, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 27% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it concerning that Henan Carve Electronics Technology is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Henan Carve Electronics Technology's P/S?

Henan Carve Electronics Technology's P/S is on the rise since its shares have risen strongly. 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 examination of Henan Carve Electronics Technology revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

It is also worth noting that we have found 2 warning signs for Henan Carve Electronics 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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