Despite an already strong run, OSL Group Limited (HKG:863) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 221% following the latest surge, making investors sit up and take notice.

After such a large jump in price, you could be forgiven for thinking OSL Group is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 28.7x, considering almost half the companies in Hong Kong's Capital Markets industry have P/S ratios below 2.4x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

How Has OSL Group Performed Recently?

OSL Group certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. The P/S ratio is probably high because investors think the company will continue to navigate the broader industry headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

What Are Revenue Growth Metrics Telling Us About The High P/S?

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

Taking a look back first, we see that the company grew revenue by an impressive 81% last year. Still, revenue has fallen 14% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 67% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 40%, which is noticeably less attractive.

In light of this, it's understandable that OSL Group'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 OSL Group's P/S

OSL Group'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 OSL Group maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Capital Markets industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It is also worth noting that we have found 4 warning signs for OSL Group (1 can't be ignored!) that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.