Shanghai Aerospace Automobile Electromechanical Co., Ltd.'s (SHSE:600151) Share Price Boosted 41% But Its Business Prospects Need A Lift Too

Despite an already strong run, Shanghai Aerospace Automobile Electromechanical Co., Ltd. (SHSE:600151) shares have been powering on, with a gain of 41% in the last thirty days. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.4% in the last twelve months.

Even after such a large jump in price, Shanghai Aerospace Automobile Electromechanical may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.4x, since almost half of all companies in the Auto Components industry in China have P/S ratios greater than 2x and even P/S higher than 4x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Shanghai Aerospace Automobile Electromechanical

What Does Shanghai Aerospace Automobile Electromechanical's Recent Performance Look Like?

For example, consider that Shanghai Aerospace Automobile Electromechanical's financial performance has been poor lately as its revenue has been in decline. 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.

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

Shanghai Aerospace Automobile Electromechanical's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 26%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 22% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 23% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that Shanghai Aerospace Automobile Electromechanical's P/S sits below the majority of other companies. 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.

What We Can Learn From Shanghai Aerospace Automobile Electromechanical's P/S?

The latest share price surge wasn't enough to lift Shanghai Aerospace Automobile Electromechanical's P/S close to the industry median. 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.

In line with expectations, Shanghai Aerospace Automobile Electromechanical maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Shanghai Aerospace Automobile Electromechanical has 1 warning sign we think you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.