What Tinavi Medical Technologies Co.,Ltd.'s (SHSE:688277) 60% Share Price Gain Is Not Telling You

Tinavi Medical Technologies Co.,Ltd. (SHSE:688277) shareholders would be excited to see that the share price has had a great month, posting a 60% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 22% over that time.

After such a large jump in price, Tinavi Medical TechnologiesLtd's price-to-sales (or "P/S") ratio of 25.5x might make it look like a strong sell right now compared to other companies in the Medical Equipment industry in China, where around half of the companies have P/S ratios below 6.2x and even P/S below 3x are quite common. 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 Tinavi Medical TechnologiesLtd

What Does Tinavi Medical TechnologiesLtd's Recent Performance Look Like?

The recent revenue growth at Tinavi Medical TechnologiesLtd would have to be considered satisfactory if not spectacular. Perhaps the market believes the recent revenue performance is strong enough to outperform the industry, which has inflated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Tinavi Medical TechnologiesLtd's earnings, revenue and cash flow.

How Is Tinavi Medical TechnologiesLtd's Revenue Growth Trending?

Tinavi Medical TechnologiesLtd'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.

If we review the last year of revenue growth, the company posted a worthy increase of 5.2%. Revenue has also lifted 13% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 27% shows it's noticeably less attractive.

With this in mind, we find it worrying that Tinavi Medical TechnologiesLtd's P/S exceeds that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

Tinavi Medical TechnologiesLtd's P/S has grown nicely over the last month thanks to a handy boost in the share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

The fact that Tinavi Medical TechnologiesLtd currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware Tinavi Medical TechnologiesLtd is showing 3 warning signs in our investment analysis, you should know about.

If you're unsure about the strength of Tinavi Medical TechnologiesLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.