Improved Revenues Required Before Guangzhou Tech-Long Packaging Machinery Co.,Ltd. (SZSE:002209) Stock's 36% Jump Looks Justified

Guangzhou Tech-Long Packaging Machinery Co.,Ltd. (SZSE:002209) shareholders would be excited to see that the share price has had a great month, posting a 36% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 6.9% over the last year.

Even after such a large jump in price, Guangzhou Tech-Long Packaging MachineryLtd's price-to-sales (or "P/S") ratio of 1.8x might still make it look like a buy right now compared to the Machinery industry in China, where around half of the companies have P/S ratios above 2.7x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Guangzhou Tech-Long Packaging MachineryLtd

How Guangzhou Tech-Long Packaging MachineryLtd Has Been Performing

Guangzhou Tech-Long Packaging MachineryLtd has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. Those who are bullish on Guangzhou Tech-Long Packaging MachineryLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Guangzhou Tech-Long Packaging MachineryLtd will help you shine a light on its historical performance.

How Is Guangzhou Tech-Long Packaging MachineryLtd's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Guangzhou Tech-Long Packaging MachineryLtd's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 9.5% last year. Pleasingly, revenue has also lifted 47% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

This is in contrast to the rest of the industry, which is expected to grow by 28% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in consideration, it's easy to understand why Guangzhou Tech-Long Packaging MachineryLtd's P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What Does Guangzhou Tech-Long Packaging MachineryLtd's P/S Mean For Investors?

Despite Guangzhou Tech-Long Packaging MachineryLtd's share price climbing recently, its P/S still lags most other companies. 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.

Our examination of Guangzhou Tech-Long Packaging MachineryLtd confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Guangzhou Tech-Long Packaging MachineryLtd has 2 warning signs we think you should be aware of.

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.