Shenyang Xingqi Pharmaceutical Co.,Ltd. (SZSE:300573) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. The annual gain comes to 113% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, you could be forgiven for thinking Shenyang Xingqi PharmaceuticalLtd is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 18.6x, considering almost half the companies in China's Pharmaceuticals industry have P/S ratios below 3.5x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

What Does Shenyang Xingqi PharmaceuticalLtd's Recent Performance Look Like?

Recent times haven't been great for Shenyang Xingqi PharmaceuticalLtd as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

How Is Shenyang Xingqi PharmaceuticalLtd's Revenue Growth Trending?

Shenyang Xingqi PharmaceuticalLtd'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.

Retrospectively, the last year delivered a decent 7.0% gain to the company's revenues. Pleasingly, revenue has also lifted 124% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 39% during the coming year according to the only analyst following the company. With the industry only predicted to deliver 18%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Shenyang Xingqi PharmaceuticalLtd's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Shenyang Xingqi PharmaceuticalLtd's P/S

Shenyang Xingqi PharmaceuticalLtd's P/S has grown nicely over the last month thanks to a handy boost in the share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Shenyang Xingqi PharmaceuticalLtd maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Pharmaceuticals industry, as expected. 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.

You should always think about risks. Case in point, we've spotted 1 warning sign for Shenyang Xingqi PharmaceuticalLtd you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.