Despite an already strong run, DongGuan Winnerway Industry Zone LTD. (SZSE:000573) shares have been powering on, with a gain of 38% in the last thirty days. The last 30 days bring the annual gain to a very sharp 34%.

Following the firm bounce in price, when almost half of the companies in China's Real Estate industry have price-to-sales ratios (or "P/S") below 2.2x, you may consider DongGuan Winnerway Industry Zone as a stock not worth researching with its 5.9x P/S ratio. 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 DongGuan Winnerway Industry Zone Has Been Performing

The revenue growth achieved at DongGuan Winnerway Industry Zone over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors' willingness to pay up for the stock. 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 DongGuan Winnerway Industry Zone?

In order to justify its P/S ratio, DongGuan Winnerway Industry Zone would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 8.1% gain to the company's revenues. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 60% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 12% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's alarming that DongGuan Winnerway Industry Zone's P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From DongGuan Winnerway Industry Zone's P/S?

DongGuan Winnerway Industry Zone'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.

We've established that DongGuan Winnerway Industry Zone currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for DongGuan Winnerway Industry Zone that you should be aware of.

If you're unsure about the strength of DongGuan Winnerway Industry Zone'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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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.