Xi'an International Medical Investment Company Limited's (SZSE:000516) P/S Is On The Mark

When close to half the companies in the Healthcare industry in China have price-to-sales ratios (or "P/S") below 1.5x, you may consider Xi'an International Medical Investment Company Limited (SZSE:000516) as a stock to potentially avoid with its 2.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Xi'an International Medical Investment

What Does Xi'an International Medical Investment's P/S Mean For Shareholders?

Xi'an International Medical Investment certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. 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 Xi'an International Medical Investment's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Xi'an International Medical Investment?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Xi'an International Medical Investment's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 18% last year. The strong recent performance means it was also able to grow revenue by 89% 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 two analysts covering the company suggest revenue should grow by 37% over the next year. With the industry only predicted to deliver 13%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Xi'an International Medical Investment's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Xi'an International Medical Investment's P/S?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Xi'an International Medical Investment's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 1 warning sign for Xi'an International Medical Investment that we have uncovered.

If you're unsure about the strength of Xi'an International Medical Investment'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.