Zepp Health Corporation (NYSE:ZEPP) Soars 336% But It's A Story Of Risk Vs Reward

Zepp Health Corporation (NYSE:ZEPP) shareholders have had their patience rewarded with a 336% share price jump in the last month. The last 30 days were the cherry on top of the stock's 531% gain in the last year, which is nothing short of spectacular.

Even after such a large jump in price, Zepp Health may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1x, since almost half of all companies in the Electronic industry in the United States have P/S ratios greater than 2.2x and even P/S higher than 6x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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See our latest analysis for Zepp Health

What Does Zepp Health's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Zepp Health's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Zepp Health's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Zepp Health's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 39% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 80% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 21% over the next year. That's shaping up to be materially higher than the 18% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Zepp Health's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Zepp Health's P/S

Zepp Health's stock price has surged recently, but its but its P/S still remains modest. 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.

To us, it seems Zepp Health currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

It is also worth noting that we have found 1 warning sign for Zepp Health that you need to take into consideration.

If these risks are making you reconsider your opinion on Zepp Health, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.