A Piece Of The Puzzle Missing From Hefei Metalforming Intelligent Manufacturing Co., Ltd.'s (SHSE:603011) 29% Share Price Climb

Despite an already strong run, Hefei Metalforming Intelligent Manufacturing Co., Ltd. (SHSE:603011) shares have been powering on, with a gain of 29% in the last thirty days. Looking further back, the 24% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, Hefei Metalforming Intelligent Manufacturing's price-to-sales (or "P/S") ratio of 2.5x 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 3.5x and even P/S above 7x are quite common. 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 Hefei Metalforming Intelligent Manufacturing

What Does Hefei Metalforming Intelligent Manufacturing's Recent Performance Look Like?

The revenue growth achieved at Hefei Metalforming Intelligent Manufacturing over the last year would be more than acceptable for most companies. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. 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 Hefei Metalforming Intelligent Manufacturing, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

Hefei Metalforming Intelligent Manufacturing'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 an exceptional 15% gain to the company's top line. The latest three year period has also seen an excellent 88% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 23% shows it's about the same on an annualised basis.

With this information, we find it odd that Hefei Metalforming Intelligent Manufacturing is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can maintain recent growth rates.

What Does Hefei Metalforming Intelligent Manufacturing's P/S Mean For Investors?

Despite Hefei Metalforming Intelligent Manufacturing's share price climbing recently, its P/S still lags most other companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Hefei Metalforming Intelligent Manufacturing revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Before you settle on your opinion, we've discovered 1 warning sign for Hefei Metalforming Intelligent Manufacturing that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.