Subdued Growth No Barrier To Wuhan Xianglong Power Industry Co.Ltd (SHSE:600769) With Shares Advancing 26%

Wuhan Xianglong Power Industry Co.Ltd (SHSE:600769) shares have had a really impressive month, gaining 26% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.9% in the last twelve months.

Since its price has surged higher, when almost half of the companies in China's Construction industry have price-to-sales ratios (or "P/S") below 1x, you may consider Wuhan Xianglong Power IndustryLtd as a stock not worth researching with its 36.7x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Wuhan Xianglong Power IndustryLtd

How Has Wuhan Xianglong Power IndustryLtd Performed Recently?

Recent times have been quite advantageous for Wuhan Xianglong Power IndustryLtd as its revenue has been rising very briskly. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Wuhan Xianglong Power IndustryLtd?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Wuhan Xianglong Power IndustryLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 32% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 56% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

It's interesting to note that the rest of the industry is similarly expected to grow by 15% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's curious that Wuhan Xianglong Power IndustryLtd's P/S sits above the majority of other companies. It seems most investors are ignoring the fairly average recent growth rates and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as a continuation of recent revenue trends would weigh down the share price eventually.

What We Can Learn From Wuhan Xianglong Power IndustryLtd's P/S?

Wuhan Xianglong Power IndustryLtd's P/S has grown nicely over the last month thanks to a handy boost in the share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We didn't expect to see Wuhan Xianglong Power IndustryLtd trade at such a high P/S considering its last three-year revenue growth has only been on par with the rest of the industry. Right now we are uncomfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Wuhan Xianglong Power IndustryLtd with six simple checks.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.