When you see that almost half of the companies in the Healthcare industry in Hong Kong have price-to-sales ratios (or "P/S") below 1.1x, New Horizon Health Limited (HKG:6606) looks to be giving off strong sell signals with its 6.5x P/S ratio. 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.

See our latest analysis for New Horizon Health

How Has New Horizon Health Performed Recently?

With revenue growth that's superior to most other companies of late, New Horizon Health has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is New Horizon Health's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as New Horizon Health's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 245% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 40% each year as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 16% per annum, which is noticeably less attractive.

In light of this, it's understandable that New Horizon Health's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On New Horizon Health's P/S

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that New Horizon Health maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Healthcare industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

You need to take note of risks, for example - New Horizon Health has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

If you're unsure about the strength of New Horizon Health'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.