AVIC (Chengdu)UAS Co., Ltd.'s (SHSE:688297) P/S Is Still On The Mark Following 28% Share Price Bounce

AVIC (Chengdu)UAS Co., Ltd. (SHSE:688297) shares have continued their recent momentum with a 28% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 5.9% isn't as impressive.

Following the firm bounce in price, given around half the companies in China's Aerospace & Defense industry have price-to-sales ratios (or "P/S") below 8.3x, you may consider AVIC (Chengdu)UAS as a stock to avoid entirely with its 19.1x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for AVIC (Chengdu)UAS

How Has AVIC (Chengdu)UAS Performed Recently?

AVIC (Chengdu)UAS has been struggling lately as its revenue has declined faster than most other companies. One possibility is that the P/S ratio is high because investors think the company will turn things around completely and accelerate past most others in the industry. If not, then existing shareholders may be very 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 AVIC (Chengdu)UAS.

How Is AVIC (Chengdu)UAS' Revenue Growth Trending?

In order to justify its P/S ratio, AVIC (Chengdu)UAS would need to produce outstanding growth that's well in excess of 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 11%. The last three years don't look nice either as the company has shrunk revenue by 31% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 108% as estimated by the three analysts watching the company. With the industry only predicted to deliver 60%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that AVIC (Chengdu)UAS' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From AVIC (Chengdu)UAS' P/S?

AVIC (Chengdu)UAS' P/S has grown nicely over the last month thanks to a handy boost in the share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that AVIC (Chengdu)UAS maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Aerospace & Defense industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for AVIC (Chengdu)UAS that you should be aware of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.