Hezong Sience&Technology Co.;Ltd (SZSE:300477) Stock Rockets 27% But Many Are Still Ignoring The Company

Hezong Sience&Technology Co.;Ltd (SZSE:300477) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 52% share price decline over the last year.

In spite of the firm bounce in price, given about half the companies operating in China's Electrical industry have price-to-sales ratios (or "P/S") above 2.1x, you may still consider Hezong Sience&Technology;Ltd as an attractive investment with its 1x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Hezong Sience&Technology;Ltd

How Has Hezong Sience&Technology;Ltd Performed Recently?

It looks like revenue growth has deserted Hezong Sience&Technology;Ltd recently, which is not something to boast about. Perhaps the market believes the recent lacklustre revenue performance is a sign of future underperformance relative to industry peers, hurting the P/S. Those who are bullish on Hezong Sience&Technology;Ltd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Hezong Sience&Technology;Ltd's earnings, revenue and cash flow.

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

Hezong Sience&Technology;Ltd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Still, the latest three year period has seen an excellent 103% overall rise in revenue, in spite of its uninspiring short-term performance. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

It's interesting to note that the rest of the industry is similarly expected to grow by 26% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this in consideration, we find it intriguing that Hezong Sience&Technology;Ltd's P/S falls short of its industry peers. It may be that most investors are not convinced the company can maintain recent growth rates.

The Final Word

Despite Hezong Sience&Technology;Ltd's share price climbing recently, its P/S still lags most other companies. 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.

Our examination of Hezong Sience&Technology;Ltd revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Hezong Sience&Technology;Ltd that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.