Shenzhen AOTO Electronics Co., Ltd. (SZSE:002587) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 26% in that time.
Even after such a large drop in price, when almost half of the companies in China's Electronic industry have price-to-sales ratios (or "P/S") below 3.2x, you may still consider Shenzhen AOTO Electronics as a stock probably not worth researching with its 4.2x 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 as high as it is.
SZSE:002587 Price to Sales Ratio vs Industry February 14th 2024
How Shenzhen AOTO Electronics Has Been Performing
For example, consider that Shenzhen AOTO Electronics' financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.
Although there are no analyst estimates available for Shenzhen AOTO Electronics, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
How Is Shenzhen AOTO Electronics' Revenue Growth Trending?
In order to justify its P/S ratio, Shenzhen AOTO Electronics would need to produce impressive growth in excess of the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 27%. The last three years don't look nice either as the company has shrunk revenue by 22% 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 61% shows it's an unpleasant look.
In light of this, it's alarming that Shenzhen AOTO Electronics' P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.
The Key Takeaway
Despite the recent share price weakness, Shenzhen AOTO Electronics' P/S remains higher than most other companies in the 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.
We've established that Shenzhen AOTO Electronics currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
You need to take note of risks, for example - Shenzhen AOTO Electronics has 4 warning signs (and 1 which doesn't sit too well with us) we think you should know about.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。