Investors Appear Satisfied With Hiecise Precision Equipment Co.,Ltd.'s (SZSE:300809) Prospects As Shares Rocket 30%

Despite an already strong run, Hiecise Precision Equipment Co.,Ltd. (SZSE:300809) shares have been powering on, with a gain of 30% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 8.5% isn't as impressive.

Following the firm bounce in price, when almost half of the companies in China's Machinery industry have price-to-sales ratios (or "P/S") below 3.2x, you may consider Hiecise Precision EquipmentLtd as a stock not worth researching with its 17.1x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Hiecise Precision EquipmentLtd

What Does Hiecise Precision EquipmentLtd's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Hiecise Precision EquipmentLtd's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Hiecise Precision EquipmentLtd will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Hiecise Precision EquipmentLtd?

Hiecise Precision EquipmentLtd's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.9%. This means it has also seen a slide in revenue over the longer-term as revenue is down 5.1% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 90% as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 25% growth forecast for the broader industry.

With this information, we can see why Hiecise Precision EquipmentLtd is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Shares in Hiecise Precision EquipmentLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

We've established that Hiecise Precision EquipmentLtd maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Machinery industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Having said that, be aware Hiecise Precision EquipmentLtd is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Hiecise Precision EquipmentLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.