MicroPort CardioFlow Medtech Corporation (HKG:2160) shareholders won't be pleased to see that the share price has had a very rough month, dropping 33% and undoing the prior period's positive performance. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 61% loss during that time.

In spite of the heavy fall in price, you could still be forgiven for thinking MicroPort CardioFlow Medtech is a stock not worth researching with a price-to-sales ratios (or "P/S") of 4.2x, considering almost half the companies in Hong Kong's Medical Equipment industry have P/S ratios below 3.2x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

How MicroPort CardioFlow Medtech Has Been Performing

With revenue growth that's superior to most other companies of late, MicroPort CardioFlow Medtech has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, MicroPort CardioFlow Medtech would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 27%. Pleasingly, revenue has also lifted 153% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 30% each year over the next three years. That's shaping up to be materially higher than the 23% each year growth forecast for the broader industry.

In light of this, it's understandable that MicroPort CardioFlow Medtech'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.

The Bottom Line On MicroPort CardioFlow Medtech's P/S

MicroPort CardioFlow Medtech's P/S remain high even after its stock plunged. 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.

As we suspected, our examination of MicroPort CardioFlow Medtech'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. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for MicroPort CardioFlow Medtech with six simple checks will allow you to discover any risks that could be an issue.

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.

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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.