Inner Mongolia Furui Medical Science Co., Ltd. (SZSE:300049) shareholders would be excited to see that the share price has had a great month, posting a 37% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 42% in the last year.

After such a large jump in price, you could be forgiven for thinking Inner Mongolia Furui Medical Science is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 10.7x, considering almost half the companies in China's Pharmaceuticals industry have P/S ratios below 3.3x. 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 Inner Mongolia Furui Medical Science Has Been Performing

With revenue growth that's inferior to most other companies of late, Inner Mongolia Furui Medical Science has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Is There Enough Revenue Growth Forecasted For Inner Mongolia Furui Medical Science?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Inner Mongolia Furui Medical Science's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.8% last year. This was backed up an excellent period prior to see revenue up by 34% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 36% as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 18% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Inner Mongolia Furui Medical Science's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Inner Mongolia Furui Medical Science's P/S?

The strong share price surge has lead to Inner Mongolia Furui Medical Science'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.

Our look into Inner Mongolia Furui Medical Science shows that its P/S ratio remains high on the merit of its strong future revenues. 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.

Having said that, be aware Inner Mongolia Furui Medical Science is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Inner Mongolia Furui Medical Science'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.