Shanghai Aerospace Automobile Electromechanical Co., Ltd.'s (SHSE:600151) Price Is Right But Growth Is Lacking After Shares Rocket 32%

Shanghai Aerospace Automobile Electromechanical Co., Ltd. (SHSE:600151) shareholders would be excited to see that the share price has had a great month, posting a 32% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 35% over that time.

Although its price has surged higher, given about half the companies operating in China's Auto Components industry have price-to-sales ratios (or "P/S") above 1.9x, you may still consider Shanghai Aerospace Automobile Electromechanical as an attractive investment with its 0.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Shanghai Aerospace Automobile Electromechanical

How Has Shanghai Aerospace Automobile Electromechanical Performed Recently?

As an illustration, revenue has deteriorated at Shanghai Aerospace Automobile Electromechanical over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. 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.

Although there are no analyst estimates available for Shanghai Aerospace Automobile Electromechanical, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Shanghai Aerospace Automobile Electromechanical?

In order to justify its P/S ratio, Shanghai Aerospace Automobile Electromechanical would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 10%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 38% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 24% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why Shanghai Aerospace Automobile Electromechanical's P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Despite Shanghai Aerospace Automobile Electromechanical's share price climbing recently, its P/S still lags most other companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Shanghai Aerospace Automobile Electromechanical revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Shanghai Aerospace Automobile Electromechanical with six simple checks.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.