When you see that almost half of the companies in the Medical Equipment industry in Hong Kong have price-to-sales ratios (or "P/S") below 2.6x, Shanghai MicroPort MedBot (Group) Co., Ltd. (HKG:2252) looks to be giving off strong sell signals with its 40x 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 Has Shanghai MicroPort MedBot (Group) Performed Recently?
Recent times have been advantageous for Shanghai MicroPort MedBot (Group) as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.
Keen to find out how analysts think Shanghai MicroPort MedBot (Group)'s future stacks up against the industry? In that case, our free report is a great place to start.How Is Shanghai MicroPort MedBot (Group)'s Revenue Growth Trending?
There's an inherent assumption that a company should far outperform the industry for P/S ratios like Shanghai MicroPort MedBot (Group)'s to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 129% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.
Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 192% over the next year. With the industry only predicted to deliver 28%, the company is positioned for a stronger revenue result.
With this in mind, it's not hard to understand why Shanghai MicroPort MedBot (Group)'s P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Final Word
We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Shanghai MicroPort MedBot (Group) maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Medical Equipment industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
And what about other risks? Every company has them, and we've spotted 2 warning signs for Shanghai MicroPort MedBot (Group) you should know about.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
