Market Participants Recognise Zylox-Tonbridge Medical Technology Co., Ltd.'s (HKG:2190) Revenues Pushing Shares 27% Higher

Zylox-Tonbridge Medical Technology Co., Ltd. (HKG:2190) shareholders have had their patience rewarded with a 27% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 61%.

After such a large jump in price, you could be forgiven for thinking Zylox-Tonbridge Medical Technology is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 6.2x, considering almost half the companies in Hong Kong's Medical Equipment industry have P/S ratios below 3.2x. 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 Zylox-Tonbridge Medical Technology

How Has Zylox-Tonbridge Medical Technology Performed Recently?

Zylox-Tonbridge Medical Technology certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated 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 Zylox-Tonbridge Medical Technology.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Zylox-Tonbridge Medical Technology would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 61% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 33% per annum during the coming three years according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 23% each year, which is noticeably less attractive.

In light of this, it's understandable that Zylox-Tonbridge Medical 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 Zylox-Tonbridge Medical Technology's P/S

Zylox-Tonbridge Medical Technology's P/S has grown nicely over the last month thanks to a handy boost in the share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Zylox-Tonbridge Medical Technology's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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.

Before you take the next step, you should know about the 1 warning sign for Zylox-Tonbridge Medical Technology that we have uncovered.

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.