When close to half the companies in the Media industry in China have price-to-sales ratios (or "P/S") below 3.4x, you may consider Guangdong Insight Brand Marketing Group Co.,Ltd. (SZSE:300781) as a stock to avoid entirely with its 8.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

How Guangdong Insight Brand Marketing GroupLtd Has Been Performing

Recent times have been quite advantageous for Guangdong Insight Brand Marketing GroupLtd as its revenue has been rising very briskly. 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. 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 Guangdong Insight Brand Marketing GroupLtd?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Guangdong Insight Brand Marketing GroupLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 72%. The latest three year period has also seen an excellent 47% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

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 can see why Guangdong Insight Brand Marketing GroupLtd is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From Guangdong Insight Brand Marketing GroupLtd's P/S?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It's no surprise that Guangdong Insight Brand Marketing GroupLtd 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.

Before you settle on your opinion, we've discovered 2 warning signs for Guangdong Insight Brand Marketing GroupLtd that you should be aware of.

If you're unsure about the strength of Guangdong Insight Brand Marketing GroupLtd'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.