Why Investors Shouldn't Be Surprised By Shanghai General Healthy Information and Technology Co., Ltd.'s (SHSE:605186) 26% Share Price Surge

Shanghai General Healthy Information and Technology Co., Ltd. (SHSE:605186) shareholders have had their patience rewarded with a 26% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 27% in the last twelve months.

Since its price has surged higher, Shanghai General Healthy Information and Technology may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 14.5x, since almost half of all companies in the Medical Equipment industry in China have P/S ratios under 6.2x and even P/S lower than 3x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Shanghai General Healthy Information and Technology

What Does Shanghai General Healthy Information and Technology's Recent Performance Look Like?

Shanghai General Healthy Information and Technology hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Shanghai General Healthy Information and Technology will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

Shanghai General Healthy Information and Technology's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 9.3%. As a result, revenue from three years ago have also fallen 34% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 63% over the next year. That's shaping up to be materially higher than the 28% growth forecast for the broader industry.

With this information, we can see why Shanghai General Healthy Information and Technology 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 Shanghai General Healthy Information and Technology's P/S Mean For Investors?

Shares in Shanghai General Healthy Information and Technology have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

Our look into Shanghai General Healthy Information and Technology shows that its P/S ratio remains high on the merit of its strong future revenues. 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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Shanghai General Healthy Information and Technology that you need to be mindful of.

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.