Investors Appear Satisfied With Rigol Technologies Co., Ltd.'s (SHSE:688337) Prospects As Shares Rocket 25%

Despite an already strong run, Rigol Technologies Co., Ltd. (SHSE:688337) shares have been powering on, with a gain of 25% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 4.5% isn't as impressive.

Following the firm bounce in price, Rigol Technologies may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 11.5x, when you consider almost half of the companies in the Electronic industry in China have P/S ratios under 4.3x and even P/S lower than 2x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Rigol Technologies

What Does Rigol Technologies' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Rigol Technologies has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. 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 Rigol Technologies.

Is There Enough Revenue Growth Forecasted For Rigol Technologies?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Rigol Technologies' to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 6.3%. The latest three year period has also seen an excellent 51% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 40% during the coming year according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 27%, which is noticeably less attractive.

In light of this, it's understandable that Rigol Technologies' 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 Rigol Technologies' P/S

Shares in Rigol Technologies have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 Rigol Technologies 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. Unless these conditions change, they will continue to provide strong support to the share price.

You need to take note of risks, for example - Rigol Technologies has 4 warning signs (and 2 which make us uncomfortable) we think you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.