Hunan Yuneng New Energy Battery Material Co.,Ltd. (SZSE:301358) Soars 35% But It's A Story Of Risk Vs Reward

Despite an already strong run, Hunan Yuneng New Energy Battery Material Co.,Ltd. (SZSE:301358) shares have been powering on, with a gain of 35% in the last thirty days. The last 30 days bring the annual gain to a very sharp 39%.

Even after such a large jump in price, Hunan Yuneng New Energy Battery MaterialLtd may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.7x, since almost half of all companies in the Electrical industry in China have P/S ratios greater than 2.4x and even P/S higher than 5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Hunan Yuneng New Energy Battery MaterialLtd

How Has Hunan Yuneng New Energy Battery MaterialLtd Performed Recently?

While the industry has experienced revenue growth lately, Hunan Yuneng New Energy Battery MaterialLtd's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hunan Yuneng New Energy Battery MaterialLtd.

How Is Hunan Yuneng New Energy Battery MaterialLtd's Revenue Growth Trending?

Hunan Yuneng New Energy Battery MaterialLtd'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 a frustrating 55% decrease to the company's top line. Still, the latest three year period has seen an excellent 224% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 34% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 27%, which is noticeably less attractive.

In light of this, it's peculiar that Hunan Yuneng New Energy Battery MaterialLtd's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Despite Hunan Yuneng New Energy Battery MaterialLtd'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.

Hunan Yuneng New Energy Battery MaterialLtd's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Hunan Yuneng New Energy Battery MaterialLtd is showing 5 warning signs in our investment analysis, and 1 of those is concerning.

If you're unsure about the strength of Hunan Yuneng New Energy Battery MaterialLtd's 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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