Why We're Not Concerned About Shanghai MicroPort MedBot (Group) Co., Ltd.'s (HKG:2252) Share Price

Shanghai MicroPort MedBot (Group) Co., Ltd.'s (HKG:2252) price-to-sales (or "P/S") ratio of 40x may look like a poor investment opportunity when you consider close to half the companies in the Medical Equipment industry in Hong Kong have P/S ratios below 2.6x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Shanghai MicroPort MedBot (Group)

What Does Shanghai MicroPort MedBot (Group)'s Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Shanghai MicroPort MedBot (Group) has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Shanghai MicroPort MedBot (Group)'s future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Shanghai MicroPort MedBot (Group)?

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

Taking a look back first, we see that the company grew revenue by an impressive 129% last year. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 192% over the next year. With the industry only predicted to deliver 28%, the company is positioned for a stronger revenue result.

With this information, we can see why Shanghai MicroPort MedBot (Group) is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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.

As we suspected, our examination of Shanghai MicroPort MedBot (Group)'s analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Shanghai MicroPort MedBot (Group) you should be aware of.

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.