Optimistic Investors Push Zylox-Tonbridge Medical Technology Co., Ltd. (HKG:2190) Shares Up 30% But Growth Is Lacking

Despite an already strong run, Zylox-Tonbridge Medical Technology Co., Ltd. (HKG:2190) shares have been powering on, with a gain of 30% in the last thirty days. The last 30 days bring the annual gain to a very sharp 67%.

Following the firm bounce in price, Zylox-Tonbridge Medical Technology's price-to-sales (or "P/S") ratio of 7.4x might make it look like a strong sell right now compared to other companies in the Medical Equipment industry in Hong Kong, where around half of the companies have P/S ratios below 4.2x and even P/S below 1.6x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Zylox-Tonbridge Medical Technology

What Does Zylox-Tonbridge Medical Technology's Recent Performance Look Like?

Recent times have been advantageous for Zylox-Tonbridge Medical Technology as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Zylox-Tonbridge Medical Technology's future stacks up against the industry? In that case, our free report is a great place to start.

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

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. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 45% as estimated by the four analysts watching the company. That's shaping up to be similar to the 48% growth forecast for the broader industry.

In light of this, it's curious that Zylox-Tonbridge Medical Technology's P/S sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

The Final Word

Shares in Zylox-Tonbridge Medical Technology have seen a strong upwards swing lately, which has really helped boost its P/S figure. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Given Zylox-Tonbridge Medical Technology's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Zylox-Tonbridge Medical Technology 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.