Lacklustre Performance Is Driving HY Energy Group Co.,Ltd's (SHSE:600387) 45% Price Drop

HY Energy Group Co.,Ltd (SHSE:600387) shareholders won't be pleased to see that the share price has had a very rough month, dropping 45% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 45% in that time.

Since its price has dipped substantially, considering around half the companies operating in China's Oil and Gas industry have price-to-sales ratios (or "P/S") above 1.4x, you may consider HY Energy GroupLtd as an solid investment opportunity with its 0.8x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for HY Energy GroupLtd

How Has HY Energy GroupLtd Performed Recently?

As an illustration, revenue has deteriorated at HY Energy GroupLtd over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on HY Energy GroupLtd will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for HY Energy GroupLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is HY Energy GroupLtd's Revenue Growth Trending?

HY Energy GroupLtd'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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 66%. The last three years don't look nice either as the company has shrunk revenue by 58% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 6.5% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why HY Energy GroupLtd's P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

HY Energy GroupLtd's recently weak share price has pulled its P/S back below other Oil and Gas 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.

Our examination of HY Energy GroupLtd confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Plus, you should also learn about this 1 warning sign we've spotted with HY Energy GroupLtd.

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.