Despite an already strong run, Chengdu Xinzhu Road&Bridge Machinery Co.,LTD (SZSE:002480) shares have been powering on, with a gain of 28% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 11% is also fairly reasonable.

In spite of the firm bounce in price, Chengdu Xinzhu Road&Bridge MachineryLTD may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.3x, considering almost half of all companies in the Machinery industry in China have P/S ratios greater than 3.3x and even P/S higher than 6x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Chengdu Xinzhu Road&Bridge MachineryLTD's Recent Performance Look Like?

Chengdu Xinzhu Road&Bridge MachineryLTD certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Chengdu Xinzhu Road&Bridge MachineryLTD would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 63% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 87% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

It's interesting to note that the rest of the industry is similarly expected to grow by 26% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Chengdu Xinzhu Road&Bridge MachineryLTD's P/S sits below the majority of other companies. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

The Key Takeaway

The latest share price surge wasn't enough to lift Chengdu Xinzhu Road&Bridge MachineryLTD's P/S close to the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

The fact that Chengdu Xinzhu Road&Bridge MachineryLTD currently trades at a low P/S relative to the industry is unexpected considering its recent three-year growth is in line with the wider industry forecast. When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price. revenue trends suggest that the risk of a price decline is low, investors appear to perceive a possibility of revenue volatility in the future.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Chengdu Xinzhu Road&Bridge MachineryLTD you should know about.

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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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.