Ligeance Aerospace Technology Co.,Ltd. (SZSE:000697) shareholders have had their patience rewarded with a 44% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 70% in the last year.

Although its price has surged higher, Ligeance Aerospace TechnologyLtd may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 4x, since almost half of all companies in the Aerospace & Defense industry in China have P/S ratios greater than 7.4x and even P/S higher than 13x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

How Has Ligeance Aerospace TechnologyLtd Performed Recently?

Revenue has risen firmly for Ligeance Aerospace TechnologyLtd 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 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 out of favour.

Is There Any Revenue Growth Forecasted For Ligeance Aerospace TechnologyLtd?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Ligeance Aerospace TechnologyLtd's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 25% last year. Pleasingly, revenue has also lifted 74% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 40% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Ligeance Aerospace TechnologyLtd is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On Ligeance Aerospace TechnologyLtd's P/S

The latest share price surge wasn't enough to lift Ligeance Aerospace TechnologyLtd's P/S close to the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Ligeance Aerospace TechnologyLtd revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Ligeance Aerospace TechnologyLtd (1 is a bit concerning) you should be aware of.

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.

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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.