When close to half the companies in the Machinery industry in China have price-to-sales ratios (or "P/S") below 3.2x, you may consider SBT Ultrasonic Technology Co.,Ltd. (SHSE:688392) as a stock to avoid entirely with its 15.9x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for SBT Ultrasonic TechnologyLtd

What Does SBT Ultrasonic TechnologyLtd's Recent Performance Look Like?

Recent times have been advantageous for SBT Ultrasonic TechnologyLtd as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Is There Enough Revenue Growth Forecasted For SBT Ultrasonic TechnologyLtd?

The only time you'd be truly comfortable seeing a P/S as steep as SBT Ultrasonic TechnologyLtd's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 21%. The strong recent performance means it was also able to grow revenue by 123% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 51% during the coming year according to the seven analysts following the company. With the industry only predicted to deliver 32%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that SBT Ultrasonic TechnologyLtd's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From SBT Ultrasonic TechnologyLtd's P/S?

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.

We've established that SBT Ultrasonic TechnologyLtd maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Machinery industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 3 warning signs for SBT Ultrasonic TechnologyLtd (1 can't be ignored!) that you should be aware of.

If you're unsure about the strength of SBT Ultrasonic TechnologyLtd'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.