Chengdu Xinzhu Road&Bridge Machinery Co.,LTD's (SZSE:002480) Shares Not Telling The Full Story

You may think that with a price-to-sales (or "P/S") ratio of 1x Chengdu Xinzhu Road&Bridge Machinery Co.,LTD (SZSE:002480) is a stock worth checking out, seeing as almost half of all the Machinery companies in China have P/S ratios greater than 2.4x 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.

See our latest analysis for Chengdu Xinzhu Road&Bridge MachineryLTD

How Chengdu Xinzhu Road&Bridge MachineryLTD Has Been Performing

Chengdu Xinzhu Road&Bridge MachineryLTD certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Although there are no analyst estimates available for Chengdu Xinzhu Road&Bridge MachineryLTD, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Chengdu Xinzhu Road&Bridge MachineryLTD would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 52%. The strong recent performance means it was also able to grow revenue by 74% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 22% shows it's about the same on an annualised basis.

In light of this, it's peculiar that Chengdu Xinzhu Road&Bridge MachineryLTD's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can maintain recent growth rates.

The Bottom Line On Chengdu Xinzhu Road&Bridge MachineryLTD's P/S

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 Chengdu Xinzhu Road&Bridge MachineryLTD revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's performance. medium-term

It is also worth noting that we have found 1 warning sign for Chengdu Xinzhu Road&Bridge MachineryLTD that you need to take into consideration.

If you're unsure about the strength of Chengdu Xinzhu Road&Bridge MachineryLTD'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com