Jiangsu Maixinlin Aviation Science and Technology Corp. (SHSE:688685) Shares May Have Slumped 26% But Getting In Cheap Is Still Unlikely

Jiangsu Maixinlin Aviation Science and Technology Corp. (SHSE:688685) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. Looking at the bigger picture, even after this poor month the stock is up 80% in the last year.

Although its price has dipped substantially, Jiangsu Maixinlin Aviation Science and Technology may still be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 12.9x, when you consider almost half of the companies in the Aerospace & Defense industry in China have P/S ratios under 7.1x and even P/S lower than 3x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for Jiangsu Maixinlin Aviation Science and Technology

What Does Jiangsu Maixinlin Aviation Science and Technology's Recent Performance Look Like?

For instance, Jiangsu Maixinlin Aviation Science and Technology'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. If not, then existing shareholders may be quite nervous about the viability of the share price.

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 Jiangsu Maixinlin Aviation Science and Technology's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Jiangsu Maixinlin Aviation Science and Technology?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Jiangsu Maixinlin Aviation Science and Technology's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 8.5%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 26% shows it's noticeably less attractive.

With this information, we find it concerning that Jiangsu Maixinlin Aviation Science and Technology is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates 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 recent growth rates.

What Does Jiangsu Maixinlin Aviation Science and Technology's P/S Mean For Investors?

Jiangsu Maixinlin Aviation Science and Technology's shares may have suffered, but its P/S remains high. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

The fact that Jiangsu Maixinlin Aviation Science and Technology currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Jiangsu Maixinlin Aviation Science and Technology (3 are significant!) that you should be aware of before investing here.

If you're unsure about the strength of Jiangsu Maixinlin Aviation Science and Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.