Beijing LeiKe Defense Technology Co., Ltd. (SZSE:002413) Surges 27% Yet Its Low P/S Is No Reason For Excitement

Beijing LeiKe Defense Technology Co., Ltd. (SZSE:002413) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 41% in the last year.

In spite of the firm bounce in price, Beijing LeiKe Defense Technology's price-to-sales (or "P/S") ratio of 5.6x might still make it look like a buy right now compared to the Aerospace & Defense industry in China, where around half of the companies have P/S ratios above 8.2x and even P/S above 16x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Beijing LeiKe Defense Technology

What Does Beijing LeiKe Defense Technology's P/S Mean For Shareholders?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Beijing LeiKe Defense Technology has been doing quite well of late. One possibility is that the P/S ratio is low because investors think the company's revenue is going to fall away like everyone else's soon. Those who are bullish on Beijing LeiKe Defense Technology will be hoping that this isn't the case and the company continues to beat out the industry.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Beijing LeiKe Defense Technology.

Is There Any Revenue Growth Forecasted For Beijing LeiKe Defense Technology?

In order to justify its P/S ratio, Beijing LeiKe Defense Technology would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 20% overall from three years ago. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 46% as estimated by the one analyst watching the company. That's shaping up to be materially lower than the 54% growth forecast for the broader industry.

With this information, we can see why Beijing LeiKe Defense Technology is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Beijing LeiKe Defense Technology's P/S?

The latest share price surge wasn't enough to lift Beijing LeiKe Defense Technology'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.

As expected, our analysis of Beijing LeiKe Defense Technology's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Beijing LeiKe Defense Technology with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Beijing LeiKe Defense 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.