Stock Analysis

More Unpleasant Surprises Could Be In Store For Beijing Hanjian Heshan Pipeline Co.,Ltd's (SHSE:603616) Shares After Tumbling 26%

SHSE:603616
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To the annoyance of some shareholders, Beijing Hanjian Heshan Pipeline Co.,Ltd (SHSE:603616) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 36% share price drop.

In spite of the heavy fall in price, when almost half of the companies in China's Building industry have price-to-sales ratios (or "P/S") below 1.7x, you may still consider Beijing Hanjian Heshan PipelineLtd as a stock probably not worth researching with its 2.6x 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.

See our latest analysis for Beijing Hanjian Heshan PipelineLtd

ps-multiple-vs-industry
SHSE:603616 Price to Sales Ratio vs Industry February 26th 2024

What Does Beijing Hanjian Heshan PipelineLtd's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Beijing Hanjian Heshan PipelineLtd over the last year, which is not ideal at all. 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.

How Is Beijing Hanjian Heshan PipelineLtd's Revenue Growth Trending?

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.

Retrospectively, the last year delivered a frustrating 42% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 24% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 24% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Beijing Hanjian Heshan PipelineLtd is trading at a P/S higher than the industry. 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. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Final Word

There's still some elevation in Beijing Hanjian Heshan PipelineLtd's P/S, even if the same can't be said for its share price recently. 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.

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. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You should always think about risks. Case in point, we've spotted 2 warning signs for Beijing Hanjian Heshan PipelineLtd you should be aware of, and 1 of them can't be ignored.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.

View the Free Analysis

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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.