Robosense Technology Co., Ltd (HKG:2498) Looks Just Right With A 57% Price Jump

Despite an already strong run, Robosense Technology Co., Ltd (HKG:2498) shares have been powering on, with a gain of 57% in the last thirty days. The last 30 days bring the annual gain to a very sharp 39%.

After such a large jump in price, given around half the companies in Hong Kong's Electronic industry have price-to-sales ratios (or "P/S") below 0.4x, you may consider Robosense Technology as a stock to avoid entirely with its 12.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Robosense Technology

What Does Robosense Technology's P/S Mean For Shareholders?

Robosense Technology certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is Robosense Technology's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 125% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 34% per year over the next three years. That's shaping up to be materially higher than the 25% per year growth forecast for the broader industry.

In light of this, it's understandable that Robosense Technology'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 Final Word

Robosense Technology's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

As we suspected, our examination of Robosense Technology's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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 need to take note of risks, for example - Robosense Technology has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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.