GHT Co.,Ltd’s (SZSE:300711) 31% share price rise doesn’t quite add up

GHT Co., Ltd (SZSE:300711) Shares have continued their recent momentum with a 31% gain in the last month alone. The last 30 days bring the annual increase to a very strong 81%.

As the price has increased, GHTLtd is currently sending potentially very bearish signals with a price-to-sales ratio (or “P/S”) of 13.3x, which is the case for almost half of all communications industry companies in China P/S Ratios below 5.6x and even P/S below 2x are not uncommon. However, the P/S may be quite high for a reason and further research is needed to determine whether it is justified.

Check out our latest analysis for GHTLtd

How has GHTLtd performed recently?

GHTLtd has been doing a good job recently and increasing its sales solidly. Perhaps the market assumes that this good sales performance will outperform the industry in the short term, which has supported the price-to-earnings ratio. If not, existing shareholders may be a little nervous about the sustainability of the share price.

Although there are no analyst estimates for GHTLtd, take a look at these free Data-rich visualization to see how the company is performing in terms of profit, revenue and cash flow.

How is GHTLtd’s revenue growth developing?

A P/E ratio as high as GHTLtd’s can only be truly reassuring if the company’s growth is on track to significantly outperform the industry.

Looking back, last year brought an extraordinary 18% increase in the company’s revenue. Pleasingly, thanks to growth in the last twelve months, sales increased by a total of 49% compared to the previous year. So, first of all, we can confirm that the company has done an excellent job of increasing sales during this time.

Compared to the industry, which is expected to achieve 38% growth over the next 12 months, the company’s momentum is weaker based on recent medium-term annual sales results.

Based on this information, we find it concerning that GHTLtd is trading at a P/E ratio that is higher than the industry. Apparently many of the company’s investors are much more optimistic than recent times would suggest and are unwilling to give up their shares at any price. Only the bravest assume these prices are sustainable, as a continuation of recent sales trends is likely to ultimately weigh heavily on the share price.

The conclusion on the P/S of GHTLtd

GHTLtd’s P/E ratio has risen nicely over the last month thanks to a handy increase in its share price. We typically caution against reading too much into the price-to-sales ratio when making investment decisions, even though it can reveal a lot about what other market participants think about the company.

Our research at GHTLtd has found that the weak three-year sales trends are not hurting the P/E ratio as much as we do, as they look worse than current industry expectations. At the moment we are not happy with the high P/E ratio as this sales performance is unlikely to support this positive sentiment for long. Unless recent medium-term conditions improve significantly, it is very difficult to accept this share price as reasonable.

Be aware of this GHTLtd is showing 2 warning signs in our investment analysis, and one of them is a bit unpleasant.

If these Risks cause you to reconsider your opinion about GHTLtdExplore our interactive list of high-quality stocks to get an idea of ​​what else is out there.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.