Chengdu Lihang Technology Co,Ltd.'s (SHSE:603261) 33% Share Price Surge Not Quite Adding Up

Those holding Chengdu Lihang Technology Co,Ltd. (SHSE:603261) shares would be relieved that the share price has rebounded 33% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 27% in the last twelve months.

Even after such a large jump in price, there still wouldn't be many who think Chengdu Lihang Technology CoLtd's price-to-sales (or "P/S") ratio of 6.1x is worth a mention when the median P/S in China's Aerospace & Defense industry is similar at about 7.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Chengdu Lihang Technology CoLtd

How Has Chengdu Lihang Technology CoLtd Performed Recently?

Revenue has risen firmly for Chengdu Lihang Technology CoLtd recently, which is pleasing to see. 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. Those who are bullish on Chengdu Lihang Technology CoLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

How Is Chengdu Lihang Technology CoLtd's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Chengdu Lihang Technology CoLtd's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 16%. As a result, it also grew revenue by 24% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 48% shows it's noticeably less attractive.

In light of this, it's curious that Chengdu Lihang Technology CoLtd's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What We Can Learn From Chengdu Lihang Technology CoLtd's P/S?

Chengdu Lihang Technology CoLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Our examination of Chengdu Lihang Technology CoLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

You should always think about risks. Case in point, we've spotted 4 warning signs for Chengdu Lihang Technology CoLtd you should be aware of, and 2 of them make us uncomfortable.

If these risks are making you reconsider your opinion on Chengdu Lihang Technology CoLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.