The Qinhuangdao Tianqin Equipment Manufacturing Co.,Ltd. (SZSE:300922) share price has fared very poorly over the last month, falling by a substantial 26%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 16% in that time.

In spite of the heavy fall in price, Qinhuangdao Tianqin Equipment ManufacturingLtd's price-to-sales (or "P/S") ratio of 14.6x might still make it look like a strong sell right now compared to other companies in the Aerospace & Defense industry in China, where around half of the companies have P/S ratios below 6.8x and even P/S below 3x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Qinhuangdao Tianqin Equipment ManufacturingLtd

How Has Qinhuangdao Tianqin Equipment ManufacturingLtd Performed Recently?

For instance, Qinhuangdao Tianqin Equipment ManufacturingLtd's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Is There Enough Revenue Growth Forecasted For Qinhuangdao Tianqin Equipment ManufacturingLtd?

In order to justify its P/S ratio, Qinhuangdao Tianqin Equipment ManufacturingLtd would need to produce outstanding growth that's well in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 27%. This means it has also seen a slide in revenue over the longer-term as revenue is down 40% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 48% shows it's an unpleasant look.

With this information, we find it concerning that Qinhuangdao Tianqin Equipment ManufacturingLtd is trading at a P/S higher than the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. 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

A significant share price dive has done very little to deflate Qinhuangdao Tianqin Equipment ManufacturingLtd's very lofty 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 Qinhuangdao Tianqin Equipment ManufacturingLtd currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. 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 - Qinhuangdao Tianqin Equipment ManufacturingLtd has 4 warning signs (and 2 which can't be ignored) 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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