Obio Technology (Shanghai) Corp., Ltd. (SHSE:688238) shareholders would be excited to see that the share price has had a great month, posting a 41% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 35% over that time.
Following the firm bounce in price, when almost half of the companies in China's Life Sciences industry have price-to-sales ratios (or "P/S") below 8.1x, you may consider Obio Technology (Shanghai) as a stock not worth researching with its 37.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
See our latest analysis for Obio Technology (Shanghai)
SHSE:688238 Price to Sales Ratio vs Industry November 21st 2023
What Does Obio Technology (Shanghai)'s P/S Mean For Shareholders?
Obio Technology (Shanghai) hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Obio Technology (Shanghai).
Do Revenue Forecasts Match The High P/S Ratio?
In order to justify its P/S ratio, Obio Technology (Shanghai) would need to produce outstanding growth that's well in excess of the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 30%. Even so, admirably revenue has lifted 49% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.
Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 45% per year over the next three years. That's shaping up to be materially higher than the 24% per year growth forecast for the broader industry.
With this in mind, it's not hard to understand why Obio Technology (Shanghai)'s P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
What Does Obio Technology (Shanghai)'s P/S Mean For Investors?
Shares in Obio Technology (Shanghai) have seen a strong upwards swing lately, which has really helped boost its P/S figure. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our look into Obio Technology (Shanghai) shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Obio Technology (Shanghai) that you should be aware of.
If you're unsure about the strength of Obio Technology (Shanghai)'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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