After Leaping 77% Microvast Holdings, Inc. (NASDAQ:MVST) Shares Are Not Flying Under The Radar

Microvast Holdings, Inc. (NASDAQ:MVST) shareholders would be excited to see that the share price has had a great month, posting a 77% gain and recovering from prior weakness. This latest share price bounce rounds out a remarkable 1,861% gain over the last twelve months.

Following the firm bounce in price, you could be forgiven for thinking Microvast Holdings is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.5x, considering almost half the companies in the United States' Machinery industry have P/S ratios below 1.9x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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Check out our latest analysis for Microvast Holdings

What Does Microvast Holdings' Recent Performance Look Like?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Microvast Holdings has been doing quite well of late. It seems that many are expecting the company to continue defying the broader industry adversity, 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Microvast Holdings.

How Is Microvast Holdings' Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Microvast Holdings' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 21% gain to the company's top line. Pleasingly, revenue has also lifted 106% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 20% per annum over the next three years. That's shaping up to be materially higher than the 5.5% per annum growth forecast for the broader industry.

With this information, we can see why Microvast Holdings 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

Microvast Holdings shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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 Microvast Holdings 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Microvast Holdings you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.