The RoboTechnik Intelligent Technology Co., LTD (SZSE:300757) share price has done very well over the last month, posting an excellent gain of 90%. The annual gain comes to 191% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given around half the companies in China's Machinery industry have price-to-sales ratios (or "P/S") below 2.8x, you may consider RoboTechnik Intelligent Technology as a stock to avoid entirely with its 12.1x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

How RoboTechnik Intelligent Technology Has Been Performing

RoboTechnik Intelligent Technology certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

Is There Enough Revenue Growth Forecasted For RoboTechnik Intelligent Technology?

In order to justify its P/S ratio, RoboTechnik Intelligent Technology would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 85% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 112% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 27% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this information, we find it interesting that RoboTechnik Intelligent Technology is trading at a high P/S compared to the industry. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as a continuation of recent revenue trends would weigh down the share price eventually.

What Does RoboTechnik Intelligent Technology's P/S Mean For Investors?

The strong share price surge has lead to RoboTechnik Intelligent Technology's P/S soaring as well. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of RoboTechnik Intelligent Technology revealed its three-year revenue trends aren't impacting its high P/S as much as we would have predicted, given they look similar to current industry expectations. When we see average revenue with industry-like growth combined with a high P/S, we suspect the share price is at risk of declining, bringing the P/S back in line with the industry too. Unless there is a significant improvement in the company's medium-term trends, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for RoboTechnik Intelligent Technology that you should be aware of.

If you're unsure about the strength of RoboTechnik Intelligent Technology'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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