A Piece Of The Puzzle Missing From Mianyang Fulin Precision Co.,Ltd.'s (SZSE:300432) 31% Share Price Climb

Despite an already strong run, Mianyang Fulin Precision Co.,Ltd. (SZSE:300432) shares have been powering on, with a gain of 31% in the last thirty days. Looking further back, the 22% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Mianyang Fulin PrecisionLtd's P/S ratio of 2.5x, since the median price-to-sales (or "P/S") ratio for the Auto Components industry in China is also close to 2.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Mianyang Fulin PrecisionLtd

What Does Mianyang Fulin PrecisionLtd's P/S Mean For Shareholders?

The revenue growth achieved at Mianyang Fulin PrecisionLtd over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. 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 not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Mianyang Fulin PrecisionLtd will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Mianyang Fulin PrecisionLtd?

In order to justify its P/S ratio, Mianyang Fulin PrecisionLtd would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 9.8%. This was backed up an excellent period prior to see revenue up by 220% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 24% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that Mianyang Fulin PrecisionLtd's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

Its shares have lifted substantially and now Mianyang Fulin PrecisionLtd's P/S is back within range of the industry median. 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.

To our surprise, Mianyang Fulin PrecisionLtd revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

Before you settle on your opinion, we've discovered 2 warning signs for Mianyang Fulin PrecisionLtd (1 makes us a bit uncomfortable!) that you should be aware of.

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.