It's not a stretch to say that Shenyang Blue Silver Industry Automation Equipment Co., Ltd's (SZSE:300293) price-to-sales (or "P/S") ratio of 3x right now seems quite "middle-of-the-road" for companies in the Machinery industry in China, where the median P/S ratio is around 3.2x. 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.

See our latest analysis for Shenyang Blue Silver Industry Automation Equipment

How Shenyang Blue Silver Industry Automation Equipment Has Been Performing

Recent times have been quite advantageous for Shenyang Blue Silver Industry Automation Equipment as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Shenyang Blue Silver Industry Automation Equipment will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

How Is Shenyang Blue Silver Industry Automation Equipment's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Shenyang Blue Silver Industry Automation Equipment's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 40% last year. Pleasingly, revenue has also lifted 46% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 30% shows it's noticeably less attractive.

In light of this, it's curious that Shenyang Blue Silver Industry Automation Equipment's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From Shenyang Blue Silver Industry Automation Equipment's P/S?

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 examination of Shenyang Blue Silver Industry Automation Equipment revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

You need to take note of risks, for example - Shenyang Blue Silver Industry Automation Equipment has 3 warning signs (and 2 which make us uncomfortable) we think you should know about.

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.