Despite an already strong run, Sociedad Química y Minera de Chile S.A. (NYSE:SQM) shares have been powering on, with a gain of 28% in the last thirty days. The annual gain comes to 107% following the latest surge, making investors sit up and take notice.

After such a large jump in price, when almost half of the companies in the United States' Chemicals industry have price-to-sales ratios (or "P/S") below 1.2x, you may consider Sociedad Química y Minera de Chile as a stock not worth researching with its 5.5x 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.

How Has Sociedad Química y Minera de Chile Performed Recently?

While the industry has experienced revenue growth lately, Sociedad Química y Minera de Chile's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. If not, then existing shareholders may be extremely nervous about the viability of the share price.

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

In order to justify its P/S ratio, Sociedad Química y Minera de Chile 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 9.2%. The last three years don't look nice either as the company has shrunk revenue by 50% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 18% per year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 9.3% each year growth forecast for the broader industry.

With this information, we can see why Sociedad Química y Minera de Chile is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Sociedad Química y Minera de Chile's P/S?

Sociedad Química y Minera de Chile's P/S has grown nicely over the last month thanks to a handy boost in the share price. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Sociedad Química y Minera de Chile maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Chemicals 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.

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.

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.