Stock Analysis

Beijing Hanjian Heshan Pipeline Co.,Ltd (SHSE:603616) Investors Are Less Pessimistic Than Expected

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When close to half the companies in the Building industry in China have price-to-sales ratios (or "P/S") below 1.6x, you may consider Beijing Hanjian Heshan Pipeline Co.,Ltd (SHSE:603616) as a stock to potentially avoid with its 2.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for Beijing Hanjian Heshan PipelineLtd

SHSE:603616 Price to Sales Ratio vs Industry June 6th 2024

What Does Beijing Hanjian Heshan PipelineLtd's P/S Mean For Shareholders?

For instance, Beijing Hanjian Heshan PipelineLtd's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

Although there are no analyst estimates available for Beijing Hanjian Heshan PipelineLtd, 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 High P/S?

Beijing Hanjian Heshan PipelineLtd's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than 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 7.5%. As a result, revenue from three years ago have also fallen 51% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 24% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's alarming that Beijing Hanjian Heshan PipelineLtd's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Beijing Hanjian Heshan PipelineLtd's P/S?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Beijing Hanjian Heshan PipelineLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

It is also worth noting that we have found 2 warning signs for Beijing Hanjian Heshan PipelineLtd (1 can't be ignored!) that you need to take into consideration.

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).

Valuation is complex, but we're helping make it simple.

Find out whether Beijing Hanjian Heshan PipelineLtd is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.

About SHSE:603616

Beijing Hanjian Heshan PipelineLtd

Manufactures and sells pre-stressed steel cylinder concrete pipes, reinforced concrete drainage pipes, commercial concrete products, concrete admixtures, and environmental protection engineering products and equipment in China.

Flawless balance sheet and fair value.