Despite an already strong run, Wuxi Taclink Optoelectronics Technology Co., Ltd. (SHSE:688205) shares have been powering on, with a gain of 29% in the last thirty days. The last 30 days bring the annual gain to a very sharp 87%.

Following the firm bounce in price, Wuxi Taclink Optoelectronics Technology may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 11.2x, since almost half of all companies in the Electronic industry in China have P/S ratios under 4.5x and even P/S lower than 2x are not unusual. 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 Has Wuxi Taclink Optoelectronics Technology Performed Recently?

With revenue growth that's superior to most other companies of late, Wuxi Taclink Optoelectronics Technology has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. 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?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Wuxi Taclink Optoelectronics Technology's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 25%. Revenue has also lifted 19% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 37% during the coming year according to the two analysts following the company. That's shaping up to be materially higher than the 27% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Wuxi Taclink Optoelectronics Technology's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Wuxi Taclink Optoelectronics Technology's P/S?

Wuxi Taclink Optoelectronics Technology's P/S has grown nicely over the last month thanks to a handy boost in the share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Wuxi Taclink Optoelectronics Technology 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. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Having said that, be aware Wuxi Taclink Optoelectronics Technology is showing 1 warning sign in our investment analysis, you should know about.

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.