Jiangsu Wuyang Automation Control Technology Co., Ltd. (SZSE:300420) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 13% over that time.

In spite of the firm bounce in price, it's still not a stretch to say that Jiangsu Wuyang Automation Control Technology's price-to-sales (or "P/S") ratio of 2.5x right now seems quite "middle-of-the-road" compared to the Machinery industry in China, where the median P/S ratio is around 2.8x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

What Does Jiangsu Wuyang Automation Control Technology's Recent Performance Look Like?

For example, consider that Jiangsu Wuyang Automation Control Technology's financial performance has been poor lately as its revenue has been in decline. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

Is There Some Revenue Growth Forecasted For Jiangsu Wuyang Automation Control Technology?

In order to justify its P/S ratio, Jiangsu Wuyang Automation Control Technology would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 21%. This means it has also seen a slide in revenue over the longer-term as revenue is down 29% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 23% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Jiangsu Wuyang Automation Control Technology's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On Jiangsu Wuyang Automation Control Technology's P/S

Its shares have lifted substantially and now Jiangsu Wuyang Automation Control Technology's P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look at Jiangsu Wuyang Automation Control Technology 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. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 3 warning signs for Jiangsu Wuyang Automation Control Technology (1 is significant!) that you should be aware of.

If you're unsure about the strength of Jiangsu Wuyang Automation Control Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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