Market Participants Recognise Double Medical Technology Inc.'s (SZSE:002901) Revenues Pushing Shares 29% Higher

The Double Medical Technology Inc. (SZSE:002901) share price has done very well over the last month, posting an excellent gain of 29%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 3.0% in the last twelve months.

Following the firm bounce in price, given close to half the companies operating in China's Medical Equipment industry have price-to-sales ratios (or "P/S") below 5.4x, you may consider Double Medical Technology as a stock to potentially avoid with its 7.5x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Double Medical Technology

How Double Medical Technology Has Been Performing

Double Medical Technology certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Double Medical Technology would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 29% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 31% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 27% growth forecast for the broader industry.

With this information, we can see why Double Medical Technology 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.

What Does Double Medical Technology's P/S Mean For Investors?

Double Medical Technology's P/S is on the rise since its shares have risen strongly. 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.

Our look into Double Medical Technology shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. 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 2 warning signs for Double Medical Technology (of which 1 doesn't sit too well with us!) you should know about.

If you're unsure about the strength of Double Medical Technology'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.