Despite an already strong run, Aerospace Nanhu Electronic Information Technology Co., Ltd. (SHSE:688552) shares have been powering on, with a gain of 28% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 12% in the last twelve months.

Since its price has surged higher, you could be forgiven for thinking Aerospace Nanhu Electronic Information Technology is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 23.8x, considering almost half the companies in China's Aerospace & Defense industry have P/S ratios below 9.3x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

What Does Aerospace Nanhu Electronic Information Technology's Recent Performance Look Like?

Recent times haven't been great for Aerospace Nanhu Electronic Information Technology as its revenue has been falling quicker than most other companies. One possibility is that the P/S ratio is high because investors think the company will turn things around completely and accelerate past most others in the industry. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is Aerospace Nanhu Electronic Information Technology's Revenue Growth Trending?

Aerospace Nanhu Electronic Information Technology's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a frustrating 75% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 62% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 233% as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 60%, which is noticeably less attractive.

In light of this, it's understandable that Aerospace Nanhu Electronic Information Technology's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Shares in Aerospace Nanhu Electronic Information Technology have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

As we suspected, our examination of Aerospace Nanhu Electronic Information Technology's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Aerospace Nanhu Electronic Information Technology (1 is a bit concerning) you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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