There's Reason For Concern Over Wuhan Xingtu Xinke Electronics Co.,Ltd.'s (SHSE:688081) Massive 33% Price Jump

Wuhan Xingtu Xinke Electronics Co.,Ltd. (SHSE:688081) shares have had a really impressive month, gaining 33% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 31% over that time.

Following the firm bounce in price, when almost half of the companies in China's Aerospace & Defense industry have price-to-sales ratios (or "P/S") below 6.2x, you may consider Wuhan Xingtu Xinke ElectronicsLtd as a stock probably not worth researching with its 7.6x 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.

See our latest analysis for Wuhan Xingtu Xinke ElectronicsLtd

What Does Wuhan Xingtu Xinke ElectronicsLtd's Recent Performance Look Like?

For instance, Wuhan Xingtu Xinke ElectronicsLtd's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Wuhan Xingtu Xinke ElectronicsLtd's earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as high as Wuhan Xingtu Xinke ElectronicsLtd's is when the company's growth is on track to outshine the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 5.7%. The last three years don't look nice either as the company has shrunk revenue by 36% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 39% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's alarming that Wuhan Xingtu Xinke ElectronicsLtd's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Wuhan Xingtu Xinke ElectronicsLtd's P/S?

The large bounce in Wuhan Xingtu Xinke ElectronicsLtd's shares has lifted the company's P/S handsomely. 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.

We've established that Wuhan Xingtu Xinke ElectronicsLtd currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Wuhan Xingtu Xinke ElectronicsLtd that you need to be mindful of.

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.