Guangzhou Frontop Digital Creative Technology Corporation (SZSE:301313) shares have continued their recent momentum with a 46% gain in the last month alone. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

After such a large jump in price, Guangzhou Frontop Digital Creative Technology may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 6.1x, when you consider almost half of the companies in the Media industry in China have P/S ratios under 3.8x and even P/S lower than 1.6x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

How Guangzhou Frontop Digital Creative Technology Has Been Performing

Guangzhou Frontop Digital Creative Technology certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Is There Enough Revenue Growth Forecasted For Guangzhou Frontop Digital Creative Technology?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Guangzhou Frontop Digital Creative Technology's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 4.0%. However, this wasn't enough as the latest three year period has seen an unpleasant 25% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 75% during the coming year according to the lone analyst following the company. That's shaping up to be materially higher than the 14% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Guangzhou Frontop Digital Creative Technology's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Guangzhou Frontop Digital Creative Technology's P/S

Guangzhou Frontop Digital Creative Technology's P/S has grown nicely over the last month thanks to a handy boost in the share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Guangzhou Frontop Digital Creative Technology's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Guangzhou Frontop Digital Creative Technology you should know about.

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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