Investors Aren't Buying China Hainan Rubber Industry Group Co.,Ltd.'s (SHSE:601118) Revenues

With a price-to-sales (or "P/S") ratio of 0.5x China Hainan Rubber Industry Group Co.,Ltd. (SHSE:601118) may be sending bullish signals at the moment, given that almost half of all the Chemicals companies in China have P/S ratios greater than 2.4x and even P/S higher than 5x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for China Hainan Rubber Industry GroupLtd

What Does China Hainan Rubber Industry GroupLtd's P/S Mean For Shareholders?

Recent times have been advantageous for China Hainan Rubber Industry GroupLtd as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Keen to find out how analysts think China Hainan Rubber Industry GroupLtd's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, China Hainan Rubber Industry GroupLtd would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 54% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 184% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 21% during the coming year according to the only analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 24%, which is noticeably more attractive.

In light of this, it's understandable that China Hainan Rubber Industry GroupLtd's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

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.

As expected, our analysis of China Hainan Rubber Industry GroupLtd's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for China Hainan Rubber Industry GroupLtd (1 is a bit concerning!) that you need to take into consideration.

If you're unsure about the strength of China Hainan Rubber Industry GroupLtd'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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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.