Investors Don't See Light At End Of Shanghai Aerospace Automobile Electromechanical Co., Ltd.'s (SHSE:600151) Tunnel And Push Stock Down 26%

Shanghai Aerospace Automobile Electromechanical Co., Ltd. (SHSE:600151) shares have had a horrible month, losing 26% after a relatively good period beforehand. The last month has meant the stock is now only up 4.6% during the last year.

Since its price has dipped substantially, given about half the companies operating in China's Auto Components industry have price-to-sales ratios (or "P/S") above 2.2x, you may consider Shanghai Aerospace Automobile Electromechanical as an attractive investment with its 1.7x 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 limited.

Check out our latest analysis for Shanghai Aerospace Automobile Electromechanical

What Does Shanghai Aerospace Automobile Electromechanical's P/S Mean For Shareholders?

For instance, Shanghai Aerospace Automobile Electromechanical's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shanghai Aerospace Automobile Electromechanical's earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Shanghai Aerospace Automobile Electromechanical's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 46% decrease to the company's top line. As a result, revenue from three years ago have also fallen 7.0% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 24% shows it's an unpleasant look.

With this information, we are not surprised that Shanghai Aerospace Automobile Electromechanical is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

Shanghai Aerospace Automobile Electromechanical's P/S has taken a dip along with its 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.

Our examination of Shanghai Aerospace Automobile Electromechanical confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Shanghai Aerospace Automobile Electromechanical with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Shanghai Aerospace Automobile Electromechanical, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.