After Leaping 40% MEMSensing Microsystems (Suzhou, China) Co., Ltd. (SHSE:688286) Shares Are Not Flying Under The Radar

MEMSensing Microsystems (Suzhou, China) Co., Ltd. (SHSE:688286) shareholders are no doubt pleased to see that the share price has bounced 40% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 24% over that time.

Since its price has surged higher, given around half the companies in China's Electronic industry have price-to-sales ratios (or "P/S") below 3.7x, you may consider MEMSensing Microsystems (Suzhou China) as a stock to avoid entirely with its 6.5x 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.

View our latest analysis for MEMSensing Microsystems (Suzhou China)

What Does MEMSensing Microsystems (Suzhou China)'s Recent Performance Look Like?

MEMSensing Microsystems (Suzhou China) 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on MEMSensing Microsystems (Suzhou China).

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

In order to justify its P/S ratio, MEMSensing Microsystems (Suzhou China) would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 27%. Revenue has also lifted 13% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 41% as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 25%, which is noticeably less attractive.

With this information, we can see why MEMSensing Microsystems (Suzhou China) 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 We Can Learn From MEMSensing Microsystems (Suzhou China)'s P/S?

The strong share price surge has lead to MEMSensing Microsystems (Suzhou China)'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.

We've established that MEMSensing Microsystems (Suzhou China) maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Electronic industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware MEMSensing Microsystems (Suzhou China) is showing 2 warning signs in our investment analysis, and 1 of those is significant.

If these risks are making you reconsider your opinion on MEMSensing Microsystems (Suzhou China), explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.