Shanghai MicroPort EP MedTech Co., Ltd.'s (SHSE:688351) 25% Jump Shows Its Popularity With Investors

Those holding Shanghai MicroPort EP MedTech Co., Ltd. (SHSE:688351) shares would be relieved that the share price has rebounded 25% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, despite the strong performance over the last month, the full year gain of 9.2% isn't as attractive.

Since its price has surged higher, Shanghai MicroPort EP MedTech may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 36.6x, when you consider almost half of the companies in the Medical Equipment industry in China have P/S ratios under 5.8x and even P/S lower than 2x 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.

Check out our latest analysis for Shanghai MicroPort EP MedTech

What Does Shanghai MicroPort EP MedTech's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Shanghai MicroPort EP MedTech has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Shanghai MicroPort EP MedTech's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

Shanghai MicroPort EP MedTech'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, we see that the company grew revenue by an impressive 26% last year. The strong recent performance means it was also able to grow revenue by 133% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 41% per annum as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 19% per annum growth forecast for the broader industry.

With this information, we can see why Shanghai MicroPort EP MedTech is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The strong share price surge has lead to Shanghai MicroPort EP MedTech's P/S soaring as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look into Shanghai MicroPort EP MedTech 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. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Shanghai MicroPort EP 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.