There's No Escaping Nanjing Chervon Auto Precision Technology Co., Ltd's (SHSE:603982) Muted Revenues Despite A 30% Share Price Rise

Nanjing Chervon Auto Precision Technology Co., Ltd (SHSE:603982) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 39% in the last twelve months.

Even after such a large jump in price, it would still be understandable if you think Nanjing Chervon Auto Precision Technology is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 1.5x, considering almost half the companies in China's Auto Components industry have P/S ratios above 2.4x. 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 Nanjing Chervon Auto Precision Technology

How Nanjing Chervon Auto Precision Technology Has Been Performing

The revenue growth achieved at Nanjing Chervon Auto Precision Technology over the last year would be more than acceptable for most companies. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Nanjing Chervon Auto Precision Technology will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Nanjing Chervon Auto Precision Technology's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 23%. The latest three year period has also seen an excellent 55% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 26% shows it's noticeably less attractive.

In light of this, it's understandable that Nanjing Chervon Auto Precision Technology's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On Nanjing Chervon Auto Precision Technology's P/S

Despite Nanjing Chervon Auto Precision Technology'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 Nanjing Chervon Auto Precision Technology 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for Nanjing Chervon Auto Precision Technology that we have uncovered.

If these risks are making you reconsider your opinion on Nanjing Chervon Auto Precision Technology, 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.