Not Many Are Piling Into Hubei Geoway Investment Co.,Ltd. (SHSE:600462) Stock Yet As It Plummets 45%

To the annoyance of some shareholders, Hubei Geoway Investment Co.,Ltd. (SHSE:600462) shares are down a considerable 45% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 51% share price decline.

Even after such a large drop in price, it's still not a stretch to say that Hubei Geoway InvestmentLtd's price-to-sales (or "P/S") ratio of 1.4x right now seems quite "middle-of-the-road" compared to the Forestry industry in China, where the median P/S ratio is around 1.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Hubei Geoway InvestmentLtd

How Has Hubei Geoway InvestmentLtd Performed Recently?

With revenue growth that's exceedingly strong of late, Hubei Geoway InvestmentLtd has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Hubei Geoway InvestmentLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Hubei Geoway InvestmentLtd's earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Hubei Geoway InvestmentLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 65% gain to the company's top line. The latest three year period has also seen an excellent 136% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that to the industry, which is only predicted to deliver 16% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that Hubei Geoway InvestmentLtd's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

Hubei Geoway InvestmentLtd's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We didn't quite envision Hubei Geoway InvestmentLtd's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

It is also worth noting that we have found 3 warning signs for Hubei Geoway InvestmentLtd (2 can't be ignored!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.