Hubei Chaozhuo Aviation Technology Co., Ltd. (SHSE:688237) shareholders are no doubt pleased to see that the share price has bounced 34% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 57% share price decline over the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Hubei Chaozhuo Aviation Technology's price-to-sales (or "P/S") ratio of 7.8x right now seems quite "middle-of-the-road" compared to the Aerospace & Defense industry in China, where the median P/S ratio is around 7.1x. 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.

How Hubei Chaozhuo Aviation Technology Has Been Performing

With revenue growth that's superior to most other companies of late, Hubei Chaozhuo Aviation Technology has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Is There Some Revenue Growth Forecasted For Hubei Chaozhuo Aviation Technology?

The only time you'd be comfortable seeing a P/S like Hubei Chaozhuo Aviation Technology's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 93%. Pleasingly, revenue has also lifted 120% 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.

Turning to the outlook, the next year should generate growth of 14% as estimated by the only analyst watching the company. That's shaping up to be materially lower than the 48% growth forecast for the broader industry.

In light of this, it's curious that Hubei Chaozhuo Aviation Technology's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What Does Hubei Chaozhuo Aviation Technology's P/S Mean For Investors?

Hubei Chaozhuo Aviation Technology's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Given that Hubei Chaozhuo Aviation Technology's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Hubei Chaozhuo Aviation Technology that you should be aware of.

If you're unsure about the strength of Hubei Chaozhuo Aviation 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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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.