China Sports Industry Group Co., Ltd. (SHSE:600158) shares have continued their recent momentum with a 26% gain in the last month alone. Looking further back, the 21% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, there still wouldn't be many who think China Sports Industry Group's price-to-sales (or "P/S") ratio of 2.2x is worth a mention when the median P/S in China's Real Estate industry is similar at about 2.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

How China Sports Industry Group Has Been Performing

China Sports Industry Group certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like China Sports Industry Group's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 175% gain to the company's top line. Pleasingly, revenue has also lifted 167% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 11% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that China Sports Industry Group is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What We Can Learn From China Sports Industry Group's P/S?

Its shares have lifted substantially and now China Sports Industry Group's P/S is back within range of the industry median. 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.

We've established that China Sports Industry Group currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with China Sports Industry Group, and understanding them should be part of your investment process.

If you're unsure about the strength of China Sports Industry Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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