Investors Continue Waiting On Sidelines For Kunshan Huguang Auto Harness Co.,Ltd. (SHSE:605333)

With a price-to-sales (or "P/S") ratio of 2x Kunshan Huguang Auto Harness Co.,Ltd. (SHSE:605333) may be sending bullish signals at the moment, given that almost half of all the Auto Components companies in China have P/S ratios greater than 3x and even P/S higher than 5x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Kunshan Huguang Auto HarnessLtd

What Does Kunshan Huguang Auto HarnessLtd's P/S Mean For Shareholders?

Kunshan Huguang Auto HarnessLtd certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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Is There Any Revenue Growth Forecasted For Kunshan Huguang Auto HarnessLtd?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Kunshan Huguang Auto HarnessLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 116%. The strong recent performance means it was also able to grow revenue by 227% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 28% as estimated by the seven analysts watching the company. That's shaping up to be materially higher than the 25% growth forecast for the broader industry.

In light of this, it's peculiar that Kunshan Huguang Auto HarnessLtd's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What Does Kunshan Huguang Auto HarnessLtd's P/S Mean For Investors?

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.

Kunshan Huguang Auto HarnessLtd's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Kunshan Huguang Auto HarnessLtd that you should be aware of.

If you're unsure about the strength of Kunshan Huguang Auto HarnessLtd'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.