When you see that almost half of the companies in the Metals and Mining industry in China have price-to-sales ratios (or "P/S") below 1.2x, Inner Mongolia Xingye Silver &Tin Mining Co.,Ltd (SZSE:000426) looks to be giving off strong sell signals with its 6.5x 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.

How Inner Mongolia Xingye Silver &Tin MiningLtd Has Been Performing

Recent times have been advantageous for Inner Mongolia Xingye Silver &Tin MiningLtd as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Inner Mongolia Xingye Silver &Tin MiningLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 98% gain to the company's top line. The latest three year period has also seen an excellent 169% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 34% during the coming year according to the dual analysts following the company. With the industry only predicted to deliver 13%, the company is positioned for a stronger revenue result.

With this information, we can see why Inner Mongolia Xingye Silver &Tin MiningLtd is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Inner Mongolia Xingye Silver &Tin MiningLtd's P/S Mean For Investors?

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.

We've established that Inner Mongolia Xingye Silver &Tin MiningLtd maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Metals and Mining industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Inner Mongolia Xingye Silver &Tin MiningLtd with six simple checks.

If these risks are making you reconsider your opinion on Inner Mongolia Xingye Silver &Tin MiningLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

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