HyUnion Holding Co.,Ltd's (SZSE:002537) Share Price Boosted 33% But Its Business Prospects Need A Lift Too

The HyUnion Holding Co.,Ltd (SZSE:002537) share price has done very well over the last month, posting an excellent gain of 33%. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 3.1% over the last year.

Although its price has surged higher, when close to half the companies operating in China's Auto Components industry have price-to-sales ratios (or "P/S") above 2.1x, you may still consider HyUnion HoldingLtd as an enticing stock to check out with its 0.9x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for HyUnion HoldingLtd

How HyUnion HoldingLtd Has Been Performing

We'd have to say that with no tangible growth over the last year, HyUnion HoldingLtd's revenue has been unimpressive. Perhaps the market believes the recent lacklustre revenue performance is a sign of future underperformance relative to industry peers, hurting the P/S. 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.

Although there are no analyst estimates available for HyUnion HoldingLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

HyUnion HoldingLtd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Fortunately, a few good years before that means that it was still able to grow revenue by 10% in total over the last three years. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 23% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that HyUnion HoldingLtd's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From HyUnion HoldingLtd's P/S?

Despite HyUnion HoldingLtd's share price climbing recently, its P/S still lags most other companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

In line with expectations, HyUnion HoldingLtd maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware HyUnion HoldingLtd is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on HyUnion HoldingLtd, 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.