Optimistic Investors Push Hebei Sailhero Environmental Protection High-tech Co.,Ltd (SZSE:300137) Shares Up 28% But Growth Is Lacking

Hebei Sailhero Environmental Protection High-tech Co.,Ltd (SZSE:300137) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 25% in the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Hebei Sailhero Environmental Protection High-techLtd's price-to-sales (or "P/S") ratio of 2.6x is worth a mention when the median P/S in China's Machinery industry is similar at about 2.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Hebei Sailhero Environmental Protection High-techLtd

What Does Hebei Sailhero Environmental Protection High-techLtd's Recent Performance Look Like?

Revenue has risen at a steady rate over the last year for Hebei Sailhero Environmental Protection High-techLtd, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. Those who are bullish on Hebei Sailhero Environmental Protection High-techLtd 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 Hebei Sailhero Environmental Protection High-techLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Hebei Sailhero Environmental Protection High-techLtd's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Hebei Sailhero Environmental Protection High-techLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 3.0%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 8.5% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 27% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Hebei Sailhero Environmental Protection High-techLtd's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. 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.

What We Can Learn From Hebei Sailhero Environmental Protection High-techLtd's P/S?

Its shares have lifted substantially and now Hebei Sailhero Environmental Protection High-techLtd's P/S is back within range of the industry median. 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.

The fact that Hebei Sailhero Environmental Protection High-techLtd 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. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Hebei Sailhero Environmental Protection High-techLtd you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.