CSSC Science& Technology Co., Ltd's (SHSE:600072) price-to-sales (or "P/S") ratio of 1.8x may not look like an appealing investment opportunity when you consider close to half the companies in the Construction industry in China have P/S ratios below 1.3x. 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 CSSC Science& Technology's Recent Performance Look Like?

For instance, CSSC Science& Technology's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. However, if this isn't the case, investors might get caught out paying too much for the stock.

Is There Enough Revenue Growth Forecasted For CSSC Science& Technology?

There's an inherent assumption that a company should outperform the industry for P/S ratios like CSSC Science& Technology's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 19% decrease to the company's top line. The latest three year period has seen an incredible overall rise in revenue, a stark contrast to the last 12 months. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it is now in decline.

When compared to the industry's one-year growth forecast of 13%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's understandable that CSSC Science& Technology's P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Final Word

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.

It's no surprise that CSSC Science& Technology can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

It is also worth noting that we have found 1 warning sign for CSSC Science& Technology that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.