Origin Agritech Limited (NASDAQ:SEED) shares have continued their recent momentum with a 27% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 29% in the last twelve months.

After such a large jump in price, you could be forgiven for thinking Origin Agritech is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.1x, considering almost half the companies in the United States' Food industry have P/S ratios below 0.9x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

What Does Origin Agritech's P/S Mean For Shareholders?

Origin Agritech certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors' willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

How Is Origin Agritech's Revenue Growth Trending?

Origin Agritech's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 77%. The strong recent performance means it was also able to grow revenue by 78% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

When compared to the industry's one-year growth forecast of 2.0%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's understandable that Origin Agritech's P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What Does Origin Agritech's P/S Mean For Investors?

Origin Agritech's P/S is on the rise since its shares have risen strongly. 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.

It's no surprise that Origin Agritech can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Origin Agritech (at least 2 which are potentially serious), and understanding these should be part of your investment process.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.