Beijing Haitian Ruisheng Science Technology Ltd. (SHSE:688787) shares have had a really impressive month, gaining 34% after a shaky period beforehand. But the last month did very little to improve the 53% share price decline over the last year.

Following the firm bounce in price, when almost half of the companies in China's Professional Services industry have price-to-sales ratios (or "P/S") below 3.2x, you may consider Beijing Haitian Ruisheng Science Technology as a stock not worth researching with its 25.8x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

What Does Beijing Haitian Ruisheng Science Technology's Recent Performance Look Like?

For instance, Beijing Haitian Ruisheng Science Technology's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

In order to justify its P/S ratio, Beijing Haitian Ruisheng Science Technology would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 35% decrease to the company's top line. As a result, revenue from three years ago have also fallen 27% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 89% shows it's an unpleasant look.

With this information, we find it concerning that Beijing Haitian Ruisheng Science Technology is trading at a P/S higher than the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Beijing Haitian Ruisheng Science Technology's P/S

The strong share price surge has lead to Beijing Haitian Ruisheng Science Technology's P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Beijing Haitian Ruisheng Science Technology currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

It is also worth noting that we have found 2 warning signs for Beijing Haitian Ruisheng Science Technology that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.