There's No Escaping Lingda Group Co., Ltd.'s (SZSE:300125) Muted Revenues Despite A 29% Share Price Rise

Despite an already strong run, Lingda Group Co., Ltd. (SZSE:300125) shares have been powering on, with a gain of 29% in the last thirty days. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 67% share price drop in the last twelve months.

In spite of the firm bounce in price, Lingda Group may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 3.5x, since almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 4.9x and even P/S higher than 9x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Lingda Group

How Lingda Group Has Been Performing

As an illustration, revenue has deteriorated at Lingda Group over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Lingda Group will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Lingda Group's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 73% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 54% in aggregate. 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 36% shows it's an unpleasant look.

With this in mind, we understand why Lingda Group's P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Lingda Group's P/S?

Lingda Group's stock price has surged recently, but its but its P/S still remains modest. 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.

As we suspected, our examination of Lingda Group revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 3 warning signs for Lingda Group that you should be aware 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.