Take Care Before Diving Into The Deep End On Chengdu Xiling Power Science & Technology Incorporated Company (SZSE:300733)

With a median price-to-sales (or "P/S") ratio of close to 2x in the Auto Components industry in China, you could be forgiven for feeling indifferent about Chengdu Xiling Power Science & Technology Incorporated Company's (SZSE:300733) P/S ratio, which comes in at about the same. 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 Chengdu Xiling Power Science & Technology

How Has Chengdu Xiling Power Science & Technology Performed Recently?

With revenue growth that's superior to most other companies of late, Chengdu Xiling Power Science & Technology has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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.

Keen to find out how analysts think Chengdu Xiling Power Science & Technology's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For Chengdu Xiling Power Science & Technology?

In order to justify its P/S ratio, Chengdu Xiling Power Science & Technology would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 34%. Pleasingly, revenue has also lifted 166% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 46% over the next year. With the industry only predicted to deliver 25%, the company is positioned for a stronger revenue result.

With this information, we find it interesting that Chengdu Xiling Power Science & Technology is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Chengdu Xiling Power Science & Technology's P/S?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Despite enticing revenue growth figures that outpace the industry, Chengdu Xiling Power Science & Technology's P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 1 warning sign for Chengdu Xiling Power Science & Technology that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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