Beijing Balance Medical Technology Co.,Ltd.'s (SHSE:688198) 42% Jump Shows Its Popularity With Investors

Beijing Balance Medical Technology Co.,Ltd. (SHSE:688198) shareholders have had their patience rewarded with a 42% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 5.2% isn't as attractive.

After such a large jump in price, Beijing Balance Medical TechnologyLtd may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 48.6x, when you consider almost half of the companies in the Medical Equipment industry in China have P/S ratios under 6.2x and even P/S lower than 3x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Beijing Balance Medical TechnologyLtd

What Does Beijing Balance Medical TechnologyLtd's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Beijing Balance Medical TechnologyLtd has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Beijing Balance Medical TechnologyLtd will help you uncover what's on the horizon.

How Is Beijing Balance Medical TechnologyLtd's Revenue Growth Trending?

In order to justify its P/S ratio, Beijing Balance Medical TechnologyLtd would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 22% last year. Pleasingly, revenue has also lifted 64% 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 only analyst covering the company suggest revenue should grow by 53% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 27%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Beijing Balance Medical TechnologyLtd's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Beijing Balance Medical TechnologyLtd's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 Beijing Balance Medical TechnologyLtd 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. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Beijing Balance Medical TechnologyLtd 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.