Aerospace Hi-Tech Holding Group Co., Ltd. (SZSE:000901) Stock Catapults 32% Though Its Price And Business Still Lag The Industry

The Aerospace Hi-Tech Holding Group Co., Ltd. (SZSE:000901) share price has done very well over the last month, posting an excellent gain of 32%. Notwithstanding the latest gain, the annual share price return of 6.5% isn't as impressive.

Even after such a large jump in price, it would still be understandable if you think Aerospace Hi-Tech Holding Group is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 1.3x, considering almost half the companies in China's Auto Components industry have P/S ratios above 2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Aerospace Hi-Tech Holding Group

How Has Aerospace Hi-Tech Holding Group Performed Recently?

The revenue growth achieved at Aerospace Hi-Tech Holding Group over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

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 Aerospace Hi-Tech Holding Group's earnings, revenue and cash flow.

How Is Aerospace Hi-Tech Holding Group's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Aerospace Hi-Tech Holding Group's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 18% gain to the company's top line. Revenue has also lifted 23% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Aerospace Hi-Tech Holding Group is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On Aerospace Hi-Tech Holding Group's P/S

Aerospace Hi-Tech Holding Group's stock price has surged recently, but its but its P/S still remains modest. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of Aerospace Hi-Tech Holding Group 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.

Before you settle on your opinion, we've discovered 1 warning sign for Aerospace Hi-Tech Holding Group that 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.

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