Hanma Technology Group Co.,Ltd. (SHSE:600375) Shares Fly 27% But Investors Aren't Buying For Growth

Hanma Technology Group Co.,Ltd. (SHSE:600375) shares have continued their recent momentum with a 27% gain in the last month alone. Looking further back, the 12% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, Hanma Technology GroupLtd's price-to-sales (or "P/S") ratio of 1x might still make it look like a strong buy right now compared to the wider Machinery industry in China, where around half of the companies have P/S ratios above 3.1x and even P/S above 6x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Hanma Technology GroupLtd

What Does Hanma Technology GroupLtd's Recent Performance Look Like?

Revenue has risen firmly for Hanma Technology GroupLtd recently, which is pleasing to see. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Hanma Technology GroupLtd's earnings, revenue and cash flow.

How Is Hanma Technology GroupLtd's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Hanma Technology GroupLtd's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 15% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 22% drop in revenue in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 26% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Hanma Technology GroupLtd is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Hanma Technology GroupLtd's P/S Mean For Investors?

Shares in Hanma Technology GroupLtd have risen appreciably however, its P/S is still subdued. 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.

As we suspected, our examination of Hanma Technology GroupLtd revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Hanma Technology GroupLtd that you should be aware of.

If these risks are making you reconsider your opinion on Hanma Technology GroupLtd, 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.