MEMSensing Microsystems (Suzhou, China) Co., Ltd. (SHSE:688286) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 14% over that time.

Since its price has surged higher, you could be forgiven for thinking MEMSensing Microsystems (Suzhou China) is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 6.6x, considering almost half the companies in China's Electronic industry have P/S ratios below 3.7x. 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.

How MEMSensing Microsystems (Suzhou China) Has Been Performing

Recent times have been advantageous for MEMSensing Microsystems (Suzhou China) as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is MEMSensing Microsystems (Suzhou China)'s Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as MEMSensing Microsystems (Suzhou China)'s is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 39% last year. As a result, it also grew revenue by 9.8% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 40% over the next year. That's shaping up to be materially higher than the 26% growth forecast for the broader industry.

With this information, we can see why MEMSensing Microsystems (Suzhou China) is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does MEMSensing Microsystems (Suzhou China)'s P/S Mean For Investors?

Shares in MEMSensing Microsystems (Suzhou China) have seen a strong upwards swing lately, which has really helped boost its P/S figure. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that MEMSensing Microsystems (Suzhou China) maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Electronic industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for MEMSensing Microsystems (Suzhou China) you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.