It's not a stretch to say that Hunan Boyun New Materials Co.,Ltd's (SZSE:002297) price-to-sales (or "P/S") ratio of 6.8x right now seems quite "middle-of-the-road" for companies in the Aerospace & Defense industry in China, where the median P/S ratio is around 7.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Hunan Boyun New MaterialsLtd

What Does Hunan Boyun New MaterialsLtd's P/S Mean For Shareholders?

Revenue has risen firmly for Hunan Boyun New MaterialsLtd recently, which is pleasing to see. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. Those who are bullish on Hunan Boyun New MaterialsLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

What Are Revenue Growth Metrics Telling Us About The P/S?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Hunan Boyun New MaterialsLtd's to be considered reasonable.

Retrospectively, the last year delivered a decent 8.2% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 73% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is predicted to deliver 47% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Hunan Boyun New MaterialsLtd's P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Bottom Line On Hunan Boyun New MaterialsLtd's P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Hunan Boyun New MaterialsLtd's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. 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 should always think about risks. Case in point, we've spotted 1 warning sign for Hunan Boyun New MaterialsLtd you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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