What Hangzhou Huning Elevator Parts Co., Ltd.'s (SZSE:300669) P/S Is Not Telling You

Hangzhou Huning Elevator Parts Co., Ltd.'s (SZSE:300669) price-to-sales (or "P/S") ratio of 11.9x may look like a poor investment opportunity when you consider close to half the companies in the Machinery industry in China have P/S ratios below 3.3x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Hangzhou Huning Elevator Parts

How Has Hangzhou Huning Elevator Parts Performed Recently?

For instance, Hangzhou Huning Elevator Parts' receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Hangzhou Huning Elevator Parts will help you shine a light on its historical performance.

How Is Hangzhou Huning Elevator Parts' Revenue Growth Trending?

In order to justify its P/S ratio, Hangzhou Huning Elevator Parts would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 15% decrease to the company's top line. As a result, revenue from three years ago have also fallen 16% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 23% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Hangzhou Huning Elevator Parts is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Final Word

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.

Our examination of Hangzhou Huning Elevator Parts revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You should always think about risks. Case in point, we've spotted 3 warning signs for Hangzhou Huning Elevator Parts you should be aware of, and 1 of them is a bit unpleasant.

If you're unsure about the strength of Hangzhou Huning Elevator Parts' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.