Why Investors Shouldn't Be Surprised By Poly Medicure Limited's (NSE:POLYMED) 33% Share Price Surge

Despite an already strong run, Poly Medicure Limited (NSE:POLYMED) shares have been powering on, with a gain of 33% in the last thirty days. The annual gain comes to 114% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given around half the companies in India's Medical Equipment industry have price-to-sales ratios (or "P/S") below 2.2x, you may consider Poly Medicure as a stock to avoid entirely with its 21x 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.

View our latest analysis for Poly Medicure

How Has Poly Medicure Performed Recently?

Poly Medicure's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to improve, justifying the currently elevated P/S. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Poly Medicure will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

Poly Medicure's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 22% last year. The strong recent performance means it was also able to grow revenue by 79% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 24% as estimated by the six analysts watching the company. With the industry only predicted to deliver 21%, the company is positioned for a stronger revenue result.

With this information, we can see why Poly Medicure 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.

What We Can Learn From Poly Medicure's P/S?

The strong share price surge has lead to Poly Medicure's P/S soaring as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look into Poly Medicure shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Poly Medicure (1 is potentially serious) you should be aware of.

If you're unsure about the strength of Poly Medicure'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.