What Hubei Chaozhuo Aviation Technology Co., Ltd.'s (SHSE:688237) 26% Share Price Gain Is Not Telling You

Hubei Chaozhuo Aviation Technology Co., Ltd. (SHSE:688237) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 52% share price decline over the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Hubei Chaozhuo Aviation Technology's price-to-sales (or "P/S") ratio of 8.1x is worth a mention when the median P/S in China's Aerospace & Defense industry is similar at about 7.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Hubei Chaozhuo Aviation Technology

How Has Hubei Chaozhuo Aviation Technology Performed Recently?

Recent times have been advantageous for Hubei Chaozhuo Aviation Technology as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think Hubei Chaozhuo Aviation Technology's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Hubei Chaozhuo Aviation Technology's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Hubei Chaozhuo Aviation Technology's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 93% gain to the company's top line. Pleasingly, revenue has also lifted 120% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 14% as estimated by the one analyst watching the company. With the industry predicted to deliver 48% growth, the company is positioned for a weaker revenue result.

With this information, we find it interesting that Hubei Chaozhuo Aviation Technology is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From Hubei Chaozhuo Aviation Technology's P/S?

Its shares have lifted substantially and now Hubei Chaozhuo Aviation Technology's P/S is back within range of the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look at the analysts forecasts of Hubei Chaozhuo Aviation Technology's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Hubei Chaozhuo Aviation Technology, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Hubei Chaozhuo Aviation Technology, 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.