Microvast Holdings, Inc. (NASDAQ:MVST) shares have had a really impressive month, gaining 299% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 41% over that time.

Even after such a large jump in price, Microvast Holdings' price-to-sales (or "P/S") ratio of 0.7x might still make it look like a buy right now compared to the Machinery industry in the United States, where around half of the companies have P/S ratios above 1.6x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

How Microvast Holdings Has Been Performing

Recent times have been advantageous for Microvast Holdings as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Microvast Holdings' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 39%. The strong recent performance means it was also able to grow revenue by 178% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue growth will be highly resilient over the next year growing by 20%. With the rest of the industry predicted to shrink by 0.2%, that would be a fantastic result.

With this information, we find it very odd that Microvast Holdings is trading at a P/S lower than the industry. It looks like most investors aren't convinced at all that the company can achieve positive future growth in the face of a shrinking broader industry.

The Bottom Line On Microvast Holdings' P/S

Microvast Holdings' stock price has surged recently, but its but its P/S still remains modest. 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.

We've established that Microvast Holdings currently trades on a much lower than expected P/S since its growth forecasts are potentially beating a struggling industry. We believe there could be some underlying risks that are keeping the P/S modest in the context of above-average revenue growth. Amidst challenging industry conditions, a key concern is whether the company can sustain its superior revenue growth trajectory. So, the risk of a price drop looks to be subdued, but investors seem to think future revenue could see a lot of volatility.

Before you settle on your opinion, we've discovered 4 warning signs for Microvast Holdings (2 don't sit too well with us!) that you should be aware of.

If these risks are making you reconsider your opinion on Microvast Holdings, 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.