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New Silkroad Culturaltainment Limited (HKG:472) shares have had a really impressive month, gaining 28% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 60%.

Although its price has surged higher, there still wouldn't be many who think New Silkroad Culturaltainment's price-to-sales (or "P/S") ratio of 1.2x is worth a mention when the median P/S in Hong Kong's Beverage industry is similar at about 1.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for New Silkroad Culturaltainment

How Has New Silkroad Culturaltainment Performed Recently?

New Silkroad Culturaltainment has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on New Silkroad Culturaltainment will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like New Silkroad Culturaltainment's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 27% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 299% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 13% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that New Silkroad Culturaltainment's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

New Silkroad Culturaltainment appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that New Silkroad Culturaltainment currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

You need to take note of risks, for example - New Silkroad Culturaltainment has 3 warning signs (and 2 which are potentially serious) we think you should know about.

If you're unsure about the strength of New Silkroad Culturaltainment'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.