Revenues Not Telling The Story For North Long Dragon New Materials Tech Co., Ltd. (SZSE:301357) After Shares Rise 47%

North Long Dragon New Materials Tech Co., Ltd. (SZSE:301357) shares have had a really impressive month, gaining 47% after a shaky period beforehand. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Following the firm bounce in price, when almost half of the companies in China's Aerospace & Defense industry have price-to-sales ratios (or "P/S") below 8.8x, you may consider North Long Dragon New Materials Tech as a stock not worth researching with its 32.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for North Long Dragon New Materials Tech

What Does North Long Dragon New Materials Tech's P/S Mean For Shareholders?

For instance, North Long Dragon New Materials Tech's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

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 North Long Dragon New Materials Tech's earnings, revenue and cash flow.

How Is North Long Dragon New Materials Tech's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as North Long Dragon New Materials Tech's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.2%. This means it has also seen a slide in revenue over the longer-term as revenue is down 59% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 43% shows it's an unpleasant look.

With this information, we find it concerning that North Long Dragon New Materials Tech is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does North Long Dragon New Materials Tech's P/S Mean For Investors?

The strong share price surge has lead to North Long Dragon New Materials Tech's P/S soaring as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of North Long Dragon New Materials Tech revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you settle on your opinion, we've discovered 2 warning signs for North Long Dragon New Materials Tech that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.