China Aerospace International Holdings Limited (HKG:31) May Have Run Too Fast Too Soon With Recent 27% Price Plummet
China Aerospace International Holdings Limited (HKG:31) has experienced a significant 27% drop in share price over the past month, despite a 23% increase over the last year. The company's price-to-sales (P/S) ratio stands at 0.4x, aligning with the median in Hong Kong's Electronic industry. Revenue growth has been inconsistent, with a 14% increase last year but a 20% decline over three years. Given the industry's projected 16% growth, the company's stagnant revenue may lead to further share price declines unless conditions improve.
The China Aerospace International Holdings Limited (HKG:31) share price has softened a substantial 27% over the previous 30 days, handing back much of the gains the stock has made lately. Longer-term, the stock has been solid despite a difficult 30 days, gaining 23% in the last year.
Although its price has dipped substantially, there still wouldn't be many who think China Aerospace International Holdings' price-to-sales (or "P/S") ratio of 0.4x is worth a mention when it essentially matches the median P/S in Hong Kong's Electronic industry. 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.
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See our latest analysis for China Aerospace International Holdings
How Has China Aerospace International Holdings Performed Recently?
Revenue has risen firmly for China Aerospace International Holdings recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on China Aerospace International Holdings will help you shine a light on its historical performance.
Do Revenue Forecasts Match The P/S Ratio?
There's an inherent assumption that a company should be matching the industry for P/S ratios like China Aerospace International Holdings' to be considered reasonable.
Taking a look back first, we see that the company managed to grow revenues by a handy 14% last year. Still, lamentably revenue has fallen 20% in aggregate from three years ago, which is disappointing. 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 16% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.
In light of this, it's somewhat alarming that China Aerospace International Holdings' P/S sits in line with the majority of other companies. 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 China Aerospace International Holdings' P/S?
With its share price dropping off a cliff, the P/S for China Aerospace International Holdings looks to be in line with the rest of the Electronic industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
Our look at China Aerospace International Holdings revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.
We don't want to rain on the parade too much, but we did also find 1 warning sign for China Aerospace International Holdings that you need to be mindful of.
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