Sipai Health Technology Co., Ltd.'s (HKG:314) 66% Price Boost Is Out Of Tune With Revenues

Sipai Health Technology Co., Ltd. (HKG:314) shares have continued their recent momentum with a 66% gain in the last month alone. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

After such a large jump in price, you could be forgiven for thinking Sipai Health Technology is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 6x, considering almost half the companies in Hong Kong's Consumer Retailing industry have P/S ratios below 1x. 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 Sipai Health Technology

What Does Sipai Health Technology's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Sipai Health Technology has been relatively sluggish. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. 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 Sipai Health Technology.

Do Revenue Forecasts Match The High P/S Ratio?

Sipai Health 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.

If we review the last year of revenue growth, the company posted a terrific increase of 19%. The latest three year period has also seen an excellent 296% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 23% over the next year. With the industry predicted to deliver 27% growth, the company is positioned for a weaker revenue result.

In light of this, it's alarming that Sipai Health Technology's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Sipai Health Technology's P/S

Shares in Sipai Health Technology have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 concluded that Sipai Health Technology currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 1 warning sign for Sipai Health Technology that you should be aware of.

If these risks are making you reconsider your opinion on Sipai Health Technology, 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.