The Golden Solar New Energy Technology Holdings Limited (HKG:1121) share price has done very well over the last month, posting an excellent gain of 35%.    Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 31% in the last twelve months.  

Since its price has surged higher, you could be forgiven for thinking Golden Solar New Energy Technology Holdings is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 29.9x, considering almost half the companies in Hong Kong's Luxury industry have P/S ratios below 0.6x.   However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.  

SEHK:1121 Price to Sales Ratio vs Industry March 11th 2024

What Does Golden Solar New Energy Technology Holdings' P/S Mean For Shareholders?

Revenue has risen at a steady rate over the last year for Golden Solar New Energy Technology Holdings, which is generally not a bad outcome.   One possibility is that the P/S ratio is high because investors think this good revenue growth will be enough to outperform the broader industry in the near future.  If not, then existing shareholders may be a little nervous about the viability of the share price.    

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Golden Solar New Energy Technology Holdings' earnings, revenue and cash flow.  

How Is Golden Solar New Energy Technology Holdings' Revenue Growth Trending?  

Golden Solar New Energy Technology Holdings' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.  

Retrospectively, the last year delivered a decent 3.5% gain to the company's revenues.   The latest three year period has also seen an excellent 151% overall rise in revenue, aided somewhat 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 12% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Golden Solar New Energy Technology Holdings is trading at such a high P/S compared to the industry.  Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.  

The Key Takeaway

Shares in Golden Solar New Energy Technology Holdings have seen a strong upwards swing lately, which has really helped boost its P/S figure.      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.

As we suspected, our examination of Golden Solar New Energy Technology Holdings revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations.  Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat.  If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.    

We don't want to rain on the parade too much, but we did also find 1 warning sign for Golden Solar New Energy Technology Holdings that you need to be mindful of.  

If you're unsure about the strength of Golden Solar New Energy Technology Holdings' 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.