The Price Is Right For Aerospace Nanhu Electronic Information Technology Co., Ltd. (SHSE:688552)

When close to half the companies in the Aerospace & Defense industry in China have price-to-sales ratios (or "P/S") below 8.6x, you may consider Aerospace Nanhu Electronic Information Technology Co., Ltd. (SHSE:688552) as a stock to avoid entirely with its 20.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Aerospace Nanhu Electronic Information Technology

What Does Aerospace Nanhu Electronic Information Technology's Recent Performance Look Like?

Aerospace Nanhu Electronic Information Technology hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Aerospace Nanhu Electronic Information Technology.

What Are Revenue Growth Metrics Telling Us About The High P/S?

The only time you'd be truly comfortable seeing a P/S as steep as Aerospace Nanhu Electronic Information Technology's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a frustrating 75% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 62% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 233% over the next year. With the industry only predicted to deliver 45%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Aerospace Nanhu Electronic Information Technology's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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 Aerospace Nanhu Electronic Information Technology 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. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Aerospace Nanhu Electronic Information Technology (of which 1 is potentially serious!) you should know about.

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.