Zylox-Tonbridge Medical Technology Co., Ltd.'s (HKG:2190) Shares May Have Run Too Fast Too Soon

When close to half the companies in the Medical Equipment industry in Hong Kong have price-to-sales ratios (or "P/S") below 2.6x, you may consider Zylox-Tonbridge Medical Technology Co., Ltd. (HKG:2190) as a stock to avoid entirely with its 5.8x P/S ratio. 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.

See our latest analysis for Zylox-Tonbridge Medical Technology

How Has Zylox-Tonbridge Medical Technology Performed Recently?

With revenue growth that's superior to most other companies of late, Zylox-Tonbridge Medical Technology has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Zylox-Tonbridge Medical Technology.

Is There Enough Revenue Growth Forecasted For Zylox-Tonbridge Medical Technology?

The only time you'd be truly comfortable seeing a P/S as steep as Zylox-Tonbridge Medical Technology's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 58%. 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.

Looking ahead now, revenue is anticipated to climb by 38% each year during the coming three years according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 47% per year, which is noticeably more attractive.

In light of this, it's alarming that Zylox-Tonbridge Medical Technology's P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. 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.

What Does Zylox-Tonbridge Medical Technology's P/S Mean For Investors?

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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Zylox-Tonbridge Medical Technology, this doesn't appear to be impacting the P/S in the slightest. 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. At these price levels, investors should remain cautious, particularly if things don't improve.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Zylox-Tonbridge Medical Technology with six simple checks on some of these key factors.

If you're unsure about the strength of Zylox-Tonbridge Medical Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.