MicroPort CardioFlow Medtech Corporation (HKG:2160) Stocks Shoot Up 26% But Its P/S Still Looks Reasonable

Those holding MicroPort CardioFlow Medtech Corporation (HKG:2160) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Looking further back, the 10% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, MicroPort CardioFlow Medtech may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 6.5x, when you consider almost half of the companies in the Medical Equipment industry in Hong Kong have P/S ratios under 4.2x and even P/S lower than 1.2x 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.

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See our latest analysis for MicroPort CardioFlow Medtech

What Does MicroPort CardioFlow Medtech's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, MicroPort CardioFlow Medtech has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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Is There Enough Revenue Growth Forecasted For MicroPort CardioFlow Medtech?

The only time you'd be truly comfortable seeing a P/S as steep as MicroPort CardioFlow Medtech's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a decent 7.5% gain to the company's revenues. Pleasingly, revenue has also lifted 80% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 34% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 24% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why MicroPort CardioFlow Medtech's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On MicroPort CardioFlow Medtech's P/S

MicroPort CardioFlow Medtech's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 MicroPort CardioFlow Medtech maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Medical Equipment industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

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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.