What Beijing Aerospace Shenzhou Intelligent Equipment Technology Co., Ltd.'s (SZSE:300455) P/S Is Not Telling You

When close to half the companies in the Machinery industry in China have price-to-sales ratios (or "P/S") below 3.1x, you may consider Beijing Aerospace Shenzhou Intelligent Equipment Technology Co., Ltd. (SZSE:300455) as a stock to avoid entirely with its 7.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Beijing Aerospace Shenzhou Intelligent Equipment Technology

How Beijing Aerospace Shenzhou Intelligent Equipment Technology Has Been Performing

For instance, Beijing Aerospace Shenzhou Intelligent Equipment Technology's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Beijing Aerospace Shenzhou Intelligent Equipment Technology's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Beijing Aerospace Shenzhou Intelligent Equipment Technology?

The only time you'd be truly comfortable seeing a P/S as steep as Beijing Aerospace Shenzhou Intelligent Equipment Technology's is when the company's growth is on track to outshine the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 20%. As a result, revenue from three years ago have also fallen 1.6% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 22% shows it's an unpleasant look.

With this in mind, we find it worrying that Beijing Aerospace Shenzhou Intelligent Equipment Technology's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Beijing Aerospace Shenzhou Intelligent Equipment Technology's P/S Mean For Investors?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Beijing Aerospace Shenzhou Intelligent Equipment Technology currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

It is also worth noting that we have found 2 warning signs for Beijing Aerospace Shenzhou Intelligent Equipment Technology (1 is potentially serious!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Beijing Aerospace Shenzhou Intelligent Equipment Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.