Improved Revenues Required Before Xinjiang Beixin Road & Bridge Group Co., Ltd (SZSE:002307) Stock's 30% Jump Looks Justified

Despite an already strong run, Xinjiang Beixin Road & Bridge Group Co., Ltd (SZSE:002307) shares have been powering on, with a gain of 30% in the last thirty days. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 4.2% in the last twelve months.

Although its price has surged higher, Xinjiang Beixin Road & Bridge Group may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.7x, since almost half of all companies in the Construction industry in China have P/S ratios greater than 1.3x and even P/S higher than 4x are not unusual. 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 Xinjiang Beixin Road & Bridge Group

What Does Xinjiang Beixin Road & Bridge Group's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Xinjiang Beixin Road & Bridge Group over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Xinjiang Beixin Road & Bridge Group 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 Xinjiang Beixin Road & Bridge Group will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Xinjiang Beixin Road & Bridge Group's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 17%. The last three years don't look nice either as the company has shrunk revenue by 45% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 14% shows it's an unpleasant look.

With this information, we are not surprised that Xinjiang Beixin Road & Bridge Group is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Key Takeaway

The latest share price surge wasn't enough to lift Xinjiang Beixin Road & Bridge Group's P/S close to the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

It's no surprise that Xinjiang Beixin Road & Bridge Group maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Xinjiang Beixin Road & Bridge Group (2 are a bit unpleasant!) that you should be aware of before investing here.

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.