Revenues Not Telling The Story For Shandong Liancheng Precision Manufacturing Co., Ltd (SZSE:002921) After Shares Rise 29%

Shandong Liancheng Precision Manufacturing Co., Ltd (SZSE:002921) shares have continued their recent momentum with a 29% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 18% in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think Shandong Liancheng Precision Manufacturing's price-to-sales (or "P/S") ratio of 1.6x is worth a mention when the median P/S in China's Metals and Mining industry is similar at about 1.5x. 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.

Check out our latest analysis for Shandong Liancheng Precision Manufacturing

How Has Shandong Liancheng Precision Manufacturing Performed Recently?

For example, consider that Shandong Liancheng Precision Manufacturing's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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 Shandong Liancheng Precision Manufacturing's earnings, revenue and cash flow.

How Is Shandong Liancheng Precision Manufacturing's Revenue Growth Trending?

In order to justify its P/S ratio, Shandong Liancheng Precision Manufacturing would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.1%. This means it has also seen a slide in revenue over the longer-term as revenue is down 7.1% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 14% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Shandong Liancheng Precision Manufacturing is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What We Can Learn From Shandong Liancheng Precision Manufacturing's P/S?

Shandong Liancheng Precision Manufacturing appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

The fact that Shandong Liancheng Precision Manufacturing currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Shandong Liancheng Precision Manufacturing (2 are significant!) that you need to be mindful of.

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.