Zhejiang Haiyan Power System Resources Environmental Technology Co.,Ltd. (SHSE:688565) May Have Run Too Fast Too Soon With Recent 31% Price Plummet

To the annoyance of some shareholders, Zhejiang Haiyan Power System Resources Environmental Technology Co.,Ltd. (SHSE:688565) shares are down a considerable 31% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 50% share price decline.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Zhejiang Haiyan Power System Resources Environmental TechnologyLtd's P/S ratio of 2.4x, since the median price-to-sales (or "P/S") ratio for the Machinery industry in China is also close to 2.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Zhejiang Haiyan Power System Resources Environmental TechnologyLtd

What Does Zhejiang Haiyan Power System Resources Environmental TechnologyLtd's P/S Mean For Shareholders?

Zhejiang Haiyan Power System Resources Environmental TechnologyLtd has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on Zhejiang Haiyan Power System Resources Environmental TechnologyLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Zhejiang Haiyan Power System Resources Environmental TechnologyLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Zhejiang Haiyan Power System Resources Environmental TechnologyLtd's Revenue Growth Trending?

Zhejiang Haiyan Power System Resources Environmental TechnologyLtd's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company grew revenue by an impressive 27% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 5.0% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 24% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Zhejiang Haiyan Power System Resources Environmental TechnologyLtd's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a 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

Zhejiang Haiyan Power System Resources Environmental TechnologyLtd's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

The fact that Zhejiang Haiyan Power System Resources Environmental TechnologyLtd currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 3 warning signs for Zhejiang Haiyan Power System Resources Environmental TechnologyLtd you should be aware of, and 2 of them can't be ignored.

If you're unsure about the strength of Zhejiang Haiyan Power System Resources Environmental TechnologyLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.