Further Upside For HNAC Technology Co., Ltd. (SZSE:300490) Shares Could Introduce Price Risks After 31% Bounce

HNAC Technology Co., Ltd. (SZSE:300490) shareholders are no doubt pleased to see that the share price has bounced 31% 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 49% in the last twelve months.

Even after such a large jump in price, it would still be understandable if you think HNAC Technology is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 1.4x, considering almost half the companies in China's Electrical industry have P/S ratios above 2.1x. 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 HNAC Technology

What Does HNAC Technology's P/S Mean For Shareholders?

Recent times haven't been great for HNAC Technology as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

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

HNAC Technology'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.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.0% last year. Pleasingly, revenue has also lifted 130% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 115% during the coming year according to the only analyst following the company. That's shaping up to be materially higher than the 26% growth forecast for the broader industry.

With this information, we find it odd that HNAC Technology is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On HNAC Technology's P/S

Despite HNAC Technology's share price climbing recently, its P/S still lags most other companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

To us, it seems HNAC Technology currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for HNAC Technology that you should be aware 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.