Estun Automation Co., Ltd (SZSE:002747) Looks Just Right With A 28% Price Jump

Estun Automation Co., Ltd (SZSE:002747) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 30% in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think Estun Automation's price-to-sales (or "P/S") ratio of 2.9x is worth a mention when the median P/S in China's Machinery industry is similar at about 2.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Estun Automation

What Does Estun Automation's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Estun Automation has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Estun Automation.

How Is Estun Automation's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Estun Automation's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 2.5%. Pleasingly, revenue has also lifted 58% 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.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 17% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 18% per annum, which is not materially different.

With this in mind, it makes sense that Estun Automation's P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

Its shares have lifted substantially and now Estun Automation's P/S is back within range of the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look at Estun Automation's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Estun Automation that you should be aware of.

If you're unsure about the strength of Estun Automation'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.