You may think that with a price-to-sales (or "P/S") ratio of 1.9x Mianyang Fulin Precision Co.,Ltd. (SZSE:300432) is a stock worth checking out, seeing as almost half of all the Auto Components companies in China have P/S ratios greater than 2.8x and even P/S higher than 5x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Mianyang Fulin PrecisionLtd

What Does Mianyang Fulin PrecisionLtd's Recent Performance Look Like?

There hasn't been much to differentiate Mianyang Fulin PrecisionLtd's and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. Those who are bullish on Mianyang Fulin PrecisionLtd will be hoping that this isn't the case.

How Is Mianyang Fulin PrecisionLtd's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 20%. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 8.4% over the next year. Meanwhile, the rest of the industry is forecast to expand by 27%, which is noticeably more attractive.

With this in consideration, its clear as to why Mianyang Fulin PrecisionLtd's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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.

As we suspected, our examination of Mianyang Fulin PrecisionLtd's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you take the next step, you should know about the 2 warning signs for Mianyang Fulin PrecisionLtd that we have uncovered.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.