Investors Still Waiting For A Pull Back In Chengdu JOUAV Automation Tech Co.,Ltd. (SHSE:688070)

When close to half the companies in the Aerospace & Defense industry in China have price-to-sales ratios (or "P/S") below 8.2x, you may consider Chengdu JOUAV Automation Tech Co.,Ltd. (SHSE:688070) as a stock to potentially avoid with its 11.9x 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 as high as it is.

Check out our latest analysis for Chengdu JOUAV Automation TechLtd

What Does Chengdu JOUAV Automation TechLtd's P/S Mean For Shareholders?

Recent times have been pleasing for Chengdu JOUAV Automation TechLtd as its revenue has risen in spite of the industry's average revenue going into reverse. The P/S ratio is probably high because investors think the company will continue to navigate the broader industry headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Chengdu JOUAV Automation TechLtd.

Is There Enough Revenue Growth Forecasted For Chengdu JOUAV Automation TechLtd?

Chengdu JOUAV Automation TechLtd's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 16% last year. The latest three year period has also seen an excellent 41% overall rise in revenue, aided by its short-term performance. 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 one analyst covering the company suggest revenue should grow by 68% over the next year. That's shaping up to be materially higher than the 54% growth forecast for the broader industry.

In light of this, it's understandable that Chengdu JOUAV Automation TechLtd's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Chengdu JOUAV Automation TechLtd's P/S

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.

As we suspected, our examination of Chengdu JOUAV Automation TechLtd'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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Chengdu JOUAV Automation TechLtd, and understanding should be part of your investment process.

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.