Many Still Looking Away From Harbin Dongan Auto Engine Co.,Ltd (SHSE:600178)

Harbin Dongan Auto Engine Co.,Ltd's (SHSE:600178) price-to-sales (or "P/S") ratio of 1.2x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Auto Components industry in China have P/S ratios greater than 2.5x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Harbin Dongan Auto EngineLtd

How Has Harbin Dongan Auto EngineLtd Performed Recently?

While the industry has experienced revenue growth lately, Harbin Dongan Auto EngineLtd's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Harbin Dongan Auto EngineLtd.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as low as Harbin Dongan Auto EngineLtd's is when the company's growth is on track to lag the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 7.7%. The last three years don't look nice either as the company has shrunk revenue by 32% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 34% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 25%, which is noticeably less attractive.

With this information, we find it odd that Harbin Dongan Auto EngineLtd is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

To us, it seems Harbin Dongan Auto EngineLtd currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Harbin Dongan Auto EngineLtd with six simple checks.

If these risks are making you reconsider your opinion on Harbin Dongan Auto EngineLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.