Investors Appear Satisfied With Zota Health Care Limited's (NSE:ZOTA) Prospects As Shares Rocket 33%

Despite an already strong run, Zota Health Care Limited (NSE:ZOTA) shares have been powering on, with a gain of 33% in the last thirty days. The last month tops off a massive increase of 111% in the last year.

Since its price has surged higher, when almost half of the companies in India's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 3x, you may consider Zota Health Care as a stock not worth researching with its 11.6x 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.

Check out our latest analysis for Zota Health Care

What Does Zota Health Care's Recent Performance Look Like?

Zota Health Care certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for Zota Health Care, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Zota Health Care?

The only time you'd be truly comfortable seeing a P/S as steep as Zota Health Care'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 41% last year. The latest three year period has also seen an excellent 69% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 15%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we can see why Zota Health Care is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What We Can Learn From Zota Health Care's P/S?

The strong share price surge has lead to Zota Health Care's P/S soaring as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Zota Health Care revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Zota Health Care (of which 1 doesn't sit too well with us!) you should know about.

If you're unsure about the strength of Zota Health Care'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.