What Zhuzhou Tianqiao Crane Co., Ltd.'s (SZSE:002523) 28% Share Price Gain Is Not Telling You

Despite an already strong run, Zhuzhou Tianqiao Crane Co., Ltd. (SZSE:002523) shares have been powering on, with a gain of 28% in the last thirty days. The last 30 days bring the annual gain to a very sharp 45%.

In spite of the firm bounce in price, it's still not a stretch to say that Zhuzhou Tianqiao Crane's price-to-sales (or "P/S") ratio of 3x right now seems quite "middle-of-the-road" compared to the Machinery industry in China, where the median P/S ratio is around 3.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Zhuzhou Tianqiao Crane

How Zhuzhou Tianqiao Crane Has Been Performing

The revenue growth achieved at Zhuzhou Tianqiao Crane over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on Zhuzhou Tianqiao Crane will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Zhuzhou Tianqiao Crane, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Zhuzhou Tianqiao Crane?

The only time you'd be comfortable seeing a P/S like Zhuzhou Tianqiao Crane's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 23% gain to the company's top line. As a result, it also grew revenue by 12% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 24% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it interesting that Zhuzhou Tianqiao Crane is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Zhuzhou Tianqiao Crane's P/S

Zhuzhou Tianqiao Crane appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

We've established that Zhuzhou Tianqiao Crane's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

Before you take the next step, you should know about the 1 warning sign for Zhuzhou Tianqiao Crane that we have uncovered.

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.