Shenzhen Han's CNC Technology Co., Ltd.'s (SZSE:301200) Shares May Have Run Too Fast Too Soon

Shenzhen Han's CNC Technology Co., Ltd.'s (SZSE:301200) price-to-sales (or "P/S") ratio of 5.8x 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 3.1x. 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 Shenzhen Han's CNC Technology

What Does Shenzhen Han's CNC Technology's Recent Performance Look Like?

Shenzhen Han's CNC Technology certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Shenzhen Han's CNC Technology's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Shenzhen Han's CNC Technology?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Shenzhen Han's CNC Technology's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 59%. Still, revenue has fallen 17% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 12% over the next year. That's shaping up to be materially lower than the 22% growth forecast for the broader industry.

In light of this, it's alarming that Shenzhen Han's CNC Technology's P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Shenzhen Han's CNC Technology's P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Shenzhen Han's CNC Technology, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You always need to take note of risks, for example - Shenzhen Han's CNC Technology has 1 warning sign we think you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.