Nanofilm Technologies International Limited (SGX:MZH) shares have had a really impressive month, gaining 31% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 42% in the last twelve months.

After such a large jump in price, given around half the companies in Singapore's Chemicals industry have price-to-sales ratios (or "P/S") below 0.9x, you may consider Nanofilm Technologies International as a stock to avoid entirely with its 3.1x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

What Does Nanofilm Technologies International's Recent Performance Look Like?

Recent times haven't been great for Nanofilm Technologies International as its revenue has been falling quicker than most other companies. One possibility is that the P/S ratio is high because investors think the company will turn things around completely and accelerate past most others in the industry. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is Nanofilm Technologies International's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Nanofilm Technologies International's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 25% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 19% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 16% each year during the coming three years according to the seven analysts following the company. With the industry only predicted to deliver 9.3% per year, the company is positioned for a stronger revenue result.

With this information, we can see why Nanofilm Technologies International is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The strong share price surge has lead to Nanofilm Technologies International's P/S soaring as well. 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.

As we suspected, our examination of Nanofilm Technologies International's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Nanofilm Technologies International that you should be aware of.

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.