Wuxi Taclink Optoelectronics Technology Co., Ltd. (SHSE:688205) Looks Just Right With A 26% Price Jump

Wuxi Taclink Optoelectronics Technology Co., Ltd. (SHSE:688205) shares have continued their recent momentum with a 26% gain in the last month alone. The annual gain comes to 128% following the latest surge, making investors sit up and take notice.

After such a large jump in price, you could be forgiven for thinking Wuxi Taclink Optoelectronics Technology is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 12x, considering almost half the companies in China's Electronic industry have P/S ratios below 4x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Wuxi Taclink Optoelectronics Technology

What Does Wuxi Taclink Optoelectronics Technology's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Wuxi Taclink Optoelectronics Technology has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think Wuxi Taclink Optoelectronics Technology'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 Wuxi Taclink Optoelectronics Technology?

Wuxi Taclink Optoelectronics Technology'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 25% last year. The latest three year period has also seen a 19% overall rise in revenue, aided extensively by its short-term performance. 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 year should generate growth of 37% as estimated by the dual analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 26%, which is noticeably less attractive.

In light of this, it's understandable that Wuxi Taclink Optoelectronics Technology'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.

The Bottom Line On Wuxi Taclink Optoelectronics Technology's P/S

The strong share price surge has lead to Wuxi Taclink Optoelectronics Technology's P/S soaring as well. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look into Wuxi Taclink Optoelectronics Technology 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Wuxi Taclink Optoelectronics Technology, and understanding should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.