Anhui Great Wall Military Industry Co., Ltd. (SHSE:601606) Surges 37% Yet Its Low P/S Is No Reason For Excitement

The Anhui Great Wall Military Industry Co., Ltd. (SHSE:601606) share price has done very well over the last month, posting an excellent gain of 37%. Notwithstanding the latest gain, the annual share price return of 4.9% isn't as impressive.

In spite of the firm bounce in price, Anhui Great Wall Military Industry may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 6x, since almost half of all companies in the Aerospace & Defense industry in China have P/S ratios greater than 8.2x and even P/S higher than 15x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Anhui Great Wall Military Industry

How Anhui Great Wall Military Industry Has Been Performing

For example, consider that Anhui Great Wall Military Industry's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Anhui Great Wall Military Industry will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Anhui Great Wall Military Industry, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Anhui Great Wall Military Industry's Revenue Growth Trending?

Anhui Great Wall Military Industry's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 5.2% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 1.5% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 41% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we are not surprised that Anhui Great Wall Military Industry is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Anhui Great Wall Military Industry's P/S

Anhui Great Wall Military Industry's stock price has surged recently, but its but its P/S still remains modest. 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.

As we suspected, our examination of Anhui Great Wall Military Industry revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Before you take the next step, you should know about the 1 warning sign for Anhui Great Wall Military Industry that we have uncovered.

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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