Jiangsu Maixinlin Aviation Science and Technology Corp.'s (SHSE:688685) Shares Climb 37% But Its Business Is Yet to Catch Up

Jiangsu Maixinlin Aviation Science and Technology Corp. (SHSE:688685) shareholders have had their patience rewarded with a 37% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 48%.

After such a large jump in price, Jiangsu Maixinlin Aviation Science and Technology's price-to-sales (or "P/S") ratio of 12.4x might make it look like a strong sell right now compared to other companies in the Aerospace & Defense industry in China, where around half of the companies have P/S ratios below 7.1x and even P/S below 3x are quite common. 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 Jiangsu Maixinlin Aviation Science and Technology

How Has Jiangsu Maixinlin Aviation Science and Technology Performed Recently?

For example, consider that Jiangsu Maixinlin Aviation Science and Technology's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Jiangsu Maixinlin Aviation Science and Technology will help you shine a light on its historical performance.

Do Revenue Forecasts Match The High P/S Ratio?

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%. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the industry, which is expected to grow by 48% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that Jiangsu Maixinlin Aviation Science and Technology's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. 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.

The Bottom Line On Jiangsu Maixinlin Aviation Science and Technology's P/S

The strong share price surge has lead to Jiangsu Maixinlin Aviation Science and Technology's P/S soaring as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

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 observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Jiangsu Maixinlin Aviation Science and Technology (3 are a bit concerning) you should be aware of.

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.