China Automotive Interior Decoration Holdings Limited (HKG:48) Stock Catapults 32% Though Its Price And Business Still Lag The Industry

China Automotive Interior Decoration Holdings Limited (HKG:48) shares have had a really impressive month, gaining 32% after a shaky period beforehand. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

In spite of the firm bounce in price, considering around half the companies operating in Hong Kong's Auto Components industry have price-to-sales ratios (or "P/S") above 0.8x, you may still consider China Automotive Interior Decoration Holdings as an solid investment opportunity with its 0.2x 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 limited.

Our free stock report includes 3 warning signs investors should be aware of before investing in China Automotive Interior Decoration Holdings. Read for free now.

View our latest analysis for China Automotive Interior Decoration Holdings

How Has China Automotive Interior Decoration Holdings Performed Recently?

Revenue has risen firmly for China Automotive Interior Decoration Holdings recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Although there are no analyst estimates available for China Automotive Interior Decoration Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is China Automotive Interior Decoration Holdings' Revenue Growth Trending?

China Automotive Interior Decoration Holdings' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 13%. However, this wasn't enough as the latest three year period has seen an unpleasant 29% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 20% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we understand why China Automotive Interior Decoration Holdings' P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

Despite China Automotive Interior Decoration Holdings' share price climbing recently, its P/S still lags most other companies. 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.

It's no surprise that China Automotive Interior Decoration Holdings maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

It is also worth noting that we have found 3 warning signs for China Automotive Interior Decoration Holdings (1 makes us a bit uncomfortable!) that you need to take into consideration.

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.