Kunshan Huguang Auto Harness Co.,Ltd. (SHSE:605333) shares have continued their recent momentum with a 26% gain in the last month alone. The last month tops off a massive increase of 113% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Kunshan Huguang Auto HarnessLtd's price-to-sales (or "P/S") ratio of 2.7x right now seems quite "middle-of-the-road" compared to the Auto Components industry in China, where the median P/S ratio is around 2.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Kunshan Huguang Auto HarnessLtd's Recent Performance Look Like?

Kunshan Huguang Auto HarnessLtd certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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.

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, Kunshan Huguang Auto HarnessLtd would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 53%. The latest three year period has also seen an excellent 186% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 77% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 26%, which is noticeably less attractive.

In light of this, it's curious that Kunshan Huguang Auto HarnessLtd's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Kunshan Huguang Auto HarnessLtd's P/S?

Kunshan Huguang Auto HarnessLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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 Kunshan Huguang Auto HarnessLtd currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Kunshan Huguang Auto HarnessLtd that you should be aware of.

If you're unsure about the strength of Kunshan Huguang Auto HarnessLtd'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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