Guangdong Lyric Robot Automation Co.,Ltd. (SHSE:688499) shares have had a really impressive month, gaining 34% after a shaky period beforehand. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 61% share price drop in the last twelve months.

Even after such a large jump in price, Guangdong Lyric Robot AutomationLtd's price-to-sales (or "P/S") ratio of 0.8x might still make it look like a buy right now compared to the Machinery industry in China, where around half of the companies have P/S ratios above 2.8x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Guangdong Lyric Robot AutomationLtd's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Guangdong Lyric Robot AutomationLtd has been doing very well. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. Those who are bullish on Guangdong Lyric Robot AutomationLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Guangdong Lyric Robot AutomationLtd's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company grew revenue by an impressive 53% last year. The strong recent performance means it was also able to grow revenue by 285% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Guangdong Lyric Robot AutomationLtd's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Despite Guangdong Lyric Robot AutomationLtd's share price climbing recently, its P/S still lags most other companies. 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.

Our examination of Guangdong Lyric Robot AutomationLtd revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 5 warning signs for Guangdong Lyric Robot AutomationLtd (of which 4 are potentially serious!) you should know about.

If these risks are making you reconsider your opinion on Guangdong Lyric Robot AutomationLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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