The Obio Technology (Shanghai) Corp., Ltd. (SHSE:688238) share price has done very well over the last month, posting an excellent gain of 54%. 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 Obio Technology (Shanghai) is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 17.2x, considering almost half the companies in China's Life Sciences industry have P/S ratios below 5.1x. 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 Obio Technology (Shanghai) Performed Recently?

There hasn't been much to differentiate Obio Technology (Shanghai)'s and the industry's retreating revenue lately. Perhaps the market is expecting the company to reverse its fortunes and beat out a struggling industry in the future, elevating the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is Obio Technology (Shanghai)'s Revenue Growth Trending?

In order to justify its P/S ratio, Obio Technology (Shanghai) would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 2.5%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 28% each year during the coming three years according to the dual analysts following the company. With the industry only predicted to deliver 20% per year, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Obio Technology (Shanghai)'s P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Obio Technology (Shanghai)'s P/S?

Obio Technology (Shanghai)'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.

Our look into Obio Technology (Shanghai) shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Obio Technology (Shanghai) you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.