Subdued Growth No Barrier To Wuxi Lead Intelligent Equipment CO.,LTD. (SZSE:300450) With Shares Advancing 29%

Wuxi Lead Intelligent Equipment CO.,LTD. (SZSE:300450) shares have continued their recent momentum with a 29% gain in the last month alone. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 8.8% in the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Wuxi Lead Intelligent EquipmentLTD'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 3.1x. 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.

Check out our latest analysis for Wuxi Lead Intelligent EquipmentLTD

How Wuxi Lead Intelligent EquipmentLTD Has Been Performing

While the industry has experienced revenue growth lately, Wuxi Lead Intelligent EquipmentLTD's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Wuxi Lead Intelligent EquipmentLTD.

Is There Some Revenue Growth Forecasted For Wuxi Lead Intelligent EquipmentLTD?

In order to justify its P/S ratio, Wuxi Lead Intelligent EquipmentLTD would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 27% decrease to the company's top line. Even so, admirably revenue has lifted 64% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 20% over the next year. That's shaping up to be materially lower than the 24% growth forecast for the broader industry.

With this information, we find it interesting that Wuxi Lead Intelligent EquipmentLTD is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

Its shares have lifted substantially and now Wuxi Lead Intelligent EquipmentLTD'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.

When you consider that Wuxi Lead Intelligent EquipmentLTD's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Wuxi Lead Intelligent EquipmentLTD is showing 4 warning signs in our investment analysis, and 3 of those can't be ignored.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.