Hunan Zhongke Electric Co., Ltd.'s (SZSE:300035) Price Is Right But Growth Is Lacking After Shares Rocket 33%

Hunan Zhongke Electric Co., Ltd. (SZSE:300035) shareholders have had their patience rewarded with a 33% share price jump in the last month. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Even after such a large jump in price, Hunan Zhongke Electric may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.5x, since almost half of all companies in the Machinery industry in China have P/S ratios greater than 2.8x and even P/S higher than 5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Hunan Zhongke Electric

How Hunan Zhongke Electric Has Been Performing

Hunan Zhongke Electric hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hunan Zhongke Electric.

Is There Any Revenue Growth Forecasted For Hunan Zhongke Electric?

The only time you'd be truly comfortable seeing a P/S as low as Hunan Zhongke Electric's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 9.6% decrease to the company's top line. Still, the latest three year period has seen an excellent 245% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Turning to the outlook, the next year should generate growth of 16% as estimated by the four analysts watching the company. With the industry predicted to deliver 23% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Hunan Zhongke Electric's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Hunan Zhongke Electric's P/S

Hunan Zhongke Electric's stock price has surged recently, but its but its P/S still remains modest. 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.

As we suspected, our examination of Hunan Zhongke Electric's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 1 warning sign for Hunan Zhongke Electric 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).

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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.