Subdued Growth No Barrier To Guanglian Aviation Industry Co., Ltd. (SZSE:300900) With Shares Advancing 27%

Guanglian Aviation Industry Co., Ltd. (SZSE:300900) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 23% is also fairly reasonable.

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 8.7x is worth a mention when the median P/S in China's Aerospace & Defense industry is similar at about 8.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Guanglian Aviation Industry

What Does Guanglian Aviation Industry's P/S Mean For Shareholders?

Recent times have been pleasing for Guanglian Aviation Industry as its revenue has risen in spite of the industry's average revenue going into reverse. Perhaps the market is expecting its current strong performance to taper off in accordance to the rest of the industry, which has kept the P/S contained. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

Is There Some Revenue Growth Forecasted For Guanglian Aviation Industry?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 6.6% last year. The latest three year period has also seen an excellent 133% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 44% over the next year. Meanwhile, the rest of the industry is forecast to expand by 64%, which is noticeably more attractive.

With this in mind, we find it intriguing that Guanglian Aviation Industry's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. 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 Bottom Line On Guanglian Aviation Industry's P/S

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. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look at the analysts forecasts of Guanglian Aviation Industry's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. 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.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Guanglian Aviation Industry (1 shouldn't be ignored!) that you should be aware of before investing here.

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.