After Leaping 26% Obio Technology (Shanghai) Corp., Ltd. (SHSE:688238) Shares Are Not Flying Under The Radar

Despite an already strong run, Obio Technology (Shanghai) Corp., Ltd. (SHSE:688238) shares have been powering on, with a gain of 26% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 38% over that time.

Since its price has surged higher, when almost half of the companies in China's Life Sciences industry have price-to-sales ratios (or "P/S") below 5.5x, you may consider Obio Technology (Shanghai) as a stock not worth researching with its 15.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Obio Technology (Shanghai)

How Has Obio Technology (Shanghai) Performed Recently?

Recent times have been pleasing for Obio Technology (Shanghai) as its revenue has risen in spite of the industry's average revenue going into reverse. It seems that many are expecting the company to continue defying the broader industry adversity, which has increased investors’ willingness to pay up for the stock. 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 Obio Technology (Shanghai) will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

Obio Technology (Shanghai)'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 18% last year. As a result, it also grew revenue by 8.8% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 28% each year as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 12% each year growth forecast for the broader industry.

In light of this, it's understandable that Obio Technology (Shanghai)'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 Does Obio Technology (Shanghai)'s P/S Mean For Investors?

The strong share price surge has lead to Obio Technology (Shanghai)'s P/S soaring as well. 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.

Our look into Obio Technology (Shanghai) 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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You always need to take note of risks, for example - Obio Technology (Shanghai) has 1 warning sign we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.