Hainan Development HoldingsNanhai Co., Ltd.'s (SZSE:002163) Shares Leap 39% Yet They're Still Not Telling The Full Story

Despite an already strong run, Hainan Development HoldingsNanhai Co., Ltd. (SZSE:002163) shares have been powering on, with a gain of 39% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 14% over that time.

Although its price has surged higher, there still wouldn't be many who think Hainan Development HoldingsNanhai's price-to-sales (or "P/S") ratio of 1.5x is worth a mention when the median P/S in China's Construction industry is similar at about 1.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Hainan Development HoldingsNanhai

What Does Hainan Development HoldingsNanhai's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Hainan Development HoldingsNanhai has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Keen to find out how analysts think Hainan Development HoldingsNanhai's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The P/S?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Hainan Development HoldingsNanhai's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 8.6% last year. Still, revenue has barely risen at all in aggregate from three years ago, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 42% during the coming year according to the only analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 14%, which is noticeably less attractive.

With this information, we find it interesting that Hainan Development HoldingsNanhai is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

What Does Hainan Development HoldingsNanhai's P/S Mean For Investors?

Hainan Development HoldingsNanhai's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of 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.

Despite enticing revenue growth figures that outpace the industry, Hainan Development HoldingsNanhai's P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Having said that, be aware Hainan Development HoldingsNanhai is showing 1 warning sign in our investment analysis, you should know about.

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).

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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.