There Is A Reason Shanghai Yongmaotai Automotive Technology Co., Ltd.'s (SHSE:605208) Price Is Undemanding

When close to half the companies operating in the Auto Components industry in China have price-to-sales ratios (or "P/S") above 2.2x, you may consider Shanghai Yongmaotai Automotive Technology Co., Ltd. (SHSE:605208) as an attractive investment with its 0.6x 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 Yongmaotai Automotive Technology

What Does Shanghai Yongmaotai Automotive Technology's Recent Performance Look Like?

Revenue has risen firmly for Shanghai Yongmaotai Automotive Technology recently, which is pleasing to see. 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.

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

How Is Shanghai Yongmaotai Automotive Technology's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 12%. Revenue has also lifted 22% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 26% 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 Yongmaotai Automotive Technology's P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From Shanghai Yongmaotai Automotive Technology's P/S?

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.

Our examination of Shanghai Yongmaotai Automotive Technology confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of 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.

It is also worth noting that we have found 3 warning signs for Shanghai Yongmaotai Automotive Technology (2 don't sit too well with us!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Shanghai Yongmaotai Automotive Technology, 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.