Ningbo PIA Automation Holding Corp.'s (SHSE:688306) 28% Share Price Surge Not Quite Adding Up

Ningbo PIA Automation Holding Corp. (SHSE:688306) shareholders have had their patience rewarded with a 28% share price jump in the last month. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 6.0% over the last year.

Although its price has surged higher, there still wouldn't be many who think Ningbo PIA Automation Holding's price-to-sales (or "P/S") ratio of 2.8x is worth a mention when the median P/S in China's Machinery industry is similar at about 2.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Ningbo PIA Automation Holding

How Ningbo PIA Automation Holding Has Been Performing

Ningbo PIA Automation Holding has been doing a decent job lately as it's been growing revenue at a reasonable pace. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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 Ningbo PIA Automation Holding's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Ningbo PIA Automation Holding?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Ningbo PIA Automation Holding's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 4.2%. However, this wasn't enough as the latest three year period has seen an unpleasant 2.9% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 23% shows it's an unpleasant look.

With this information, we find it concerning that Ningbo PIA Automation Holding is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Ningbo PIA Automation Holding's P/S Mean For Investors?

Its shares have lifted substantially and now Ningbo PIA Automation Holding's P/S is back within range of the industry median. 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 look at Ningbo PIA Automation Holding revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Having said that, be aware Ningbo PIA Automation Holding is showing 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.