Why Investors Shouldn't Be Surprised By North Navigation Control Technology Co.,Ltd.'s (SHSE:600435) P/S

When you see that almost half of the companies in the Machinery industry in China have price-to-sales ratios (or "P/S") below 3.2x, North Navigation Control Technology Co.,Ltd. (SHSE:600435) looks to be giving off strong sell signals with its 7.9x 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 so lofty.

View our latest analysis for North Navigation Control TechnologyLtd

What Does North Navigation Control TechnologyLtd's Recent Performance Look Like?

While the industry has experienced revenue growth lately, North Navigation Control TechnologyLtd's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Keen to find out how analysts think North Navigation Control TechnologyLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, North Navigation Control TechnologyLtd would need to produce outstanding growth that's well in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 42%. This means it has also seen a slide in revenue over the longer-term as revenue is down 52% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 139% as estimated by the four analysts watching the company. With the industry only predicted to deliver 22%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why North Navigation Control TechnologyLtd's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From North Navigation Control TechnologyLtd's P/S?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of North Navigation Control TechnologyLtd's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for North Navigation Control TechnologyLtd with six simple checks.

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.