Guanglian Aviation Industry Co., Ltd.'s (SZSE:300900) 30% Share Price Surge Not Quite Adding Up

Guanglian Aviation Industry Co., Ltd. (SZSE:300900) shares have continued their recent momentum with a 30% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 45% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Guanglian Aviation Industry's price-to-sales (or "P/S") ratio of 8.9x is worth a mention when the median P/S in China's Aerospace & Defense industry is similar at about 8.5x. 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 Guanglian Aviation Industry

How Has Guanglian Aviation Industry Performed Recently?

Guanglian Aviation Industry certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. One possibility is that the P/S ratio is moderate because investors think the company's revenue will be less resilient moving forward. 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 not quite in favour.

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

How Is Guanglian Aviation Industry's Revenue Growth Trending?

In order to justify its P/S ratio, Guanglian Aviation Industry would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 6.6%. This was backed up an excellent period prior to see revenue up by 133% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 40% during the coming year according to the two analysts following the company. That's shaping up to be materially lower than the 60% growth forecast for the broader industry.

With this information, we find it interesting that Guanglian Aviation Industry is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

Guanglian Aviation Industry's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of 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.

Given that Guanglian Aviation Industry's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Guanglian Aviation Industry (1 is significant!) that you should be aware of before investing here.

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.