Investors Give Miracle Automation Engineering Co.Ltd (SZSE:002009) Shares A 29% Hiding

Miracle Automation Engineering Co.Ltd (SZSE:002009) shareholders won't be pleased to see that the share price has had a very rough month, dropping 29% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 14% in that time.

Following the heavy fall in price, Miracle Automation EngineeringLtd may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.3x, considering almost half of all companies in the Machinery industry in China have P/S ratios greater than 2.6x and even P/S higher than 5x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Miracle Automation EngineeringLtd

How Has Miracle Automation EngineeringLtd Performed Recently?

Miracle Automation EngineeringLtd 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. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Miracle Automation EngineeringLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

Miracle Automation EngineeringLtd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 9.0% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 12% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 35% over the next year. With the industry only predicted to deliver 24%, the company is positioned for a stronger revenue result.

With this information, we find it odd that Miracle Automation EngineeringLtd is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What Does Miracle Automation EngineeringLtd's P/S Mean For Investors?

Miracle Automation EngineeringLtd's P/S has taken a dip along with its share price. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A look at Miracle Automation EngineeringLtd's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

You need to take note of risks, for example - Miracle Automation EngineeringLtd has 3 warning signs (and 1 which can't be ignored) we think you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.