Landai Technology Group Corp., Ltd. (SZSE:002765) Surges 34% Yet Its Low P/S Is No Reason For Excitement

Despite an already strong run, Landai Technology Group Corp., Ltd. (SZSE:002765) shares have been powering on, with a gain of 34% in the last thirty days. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Although its price has surged higher, considering around half the companies operating in China's Auto Components industry have price-to-sales ratios (or "P/S") above 2.3x, you may still consider Landai Technology Group as an solid investment opportunity with its 1.5x 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 Landai Technology Group

What Does Landai Technology Group's P/S Mean For Shareholders?

There hasn't been much to differentiate Landai Technology Group's and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Landai Technology Group.

How Is Landai Technology Group's Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 16% last year. The latest three year period has also seen a 11% overall rise in revenue, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 15% during the coming year according to the three analysts following the company. That's shaping up to be materially lower than the 24% growth forecast for the broader industry.

In light of this, it's understandable that Landai Technology Group's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Landai Technology Group's P/S

Despite Landai Technology Group's share price climbing recently, its P/S still lags most other companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Landai Technology Group's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Landai Technology Group with six simple checks on some of these key factors.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.