Zhejiang Haiyan Power System Resources Environmental Technology Co.,Ltd. (SHSE:688565) Shares May Have Slumped 28% But Getting In Cheap Is Still Unlikely

Zhejiang Haiyan Power System Resources Environmental Technology Co.,Ltd. (SHSE:688565) shares have had a horrible month, losing 28% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 37% share price drop.

Although its price has dipped substantially, you could still be forgiven for thinking Zhejiang Haiyan Power System Resources Environmental TechnologyLtd is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.5x, considering almost half the companies in China's Machinery industry have P/S ratios below 2.8x. 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.

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

How Has Zhejiang Haiyan Power System Resources Environmental TechnologyLtd Performed Recently?

Revenue has risen firmly for Zhejiang Haiyan Power System Resources Environmental TechnologyLtd recently, which is pleasing to see. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Zhejiang Haiyan Power System Resources Environmental TechnologyLtd will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Zhejiang Haiyan Power System Resources Environmental TechnologyLtd?

Zhejiang Haiyan Power System Resources Environmental TechnologyLtd'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, we see that the company managed to grow revenues by a handy 13% last year. The latest three year period has also seen a 7.0% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 22% shows it's noticeably less attractive.

In light of this, it's alarming that Zhejiang Haiyan Power System Resources Environmental TechnologyLtd'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. 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 recent growth rates.

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

Despite the recent share price weakness, Zhejiang Haiyan Power System Resources Environmental TechnologyLtd's P/S remains higher than most other companies in the industry. 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.

The fact that Zhejiang Haiyan Power System Resources Environmental TechnologyLtd currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

It is also worth noting that we have found 1 warning sign for Zhejiang Haiyan Power System Resources Environmental TechnologyLtd that you need to take into consideration.

If these risks are making you reconsider your opinion on Zhejiang Haiyan Power System Resources Environmental TechnologyLtd, 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.