Market Cool On China Hainan Rubber Industry Group Co.,Ltd.'s (SHSE:601118) Revenues

You may think that with a price-to-sales (or "P/S") ratio of 0.6x China Hainan Rubber Industry Group Co.,Ltd. (SHSE:601118) is a stock worth checking out, seeing as almost half of all the Chemicals companies in China have P/S ratios greater than 2.2x and even P/S higher than 5x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for China Hainan Rubber Industry GroupLtd

How China Hainan Rubber Industry GroupLtd Has Been Performing

China Hainan Rubber Industry GroupLtd certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on China Hainan Rubber Industry GroupLtd will help you uncover what's on the horizon.

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.

If we review the last year of revenue growth, the company posted a terrific increase of 80%. The latest three year period has also seen an excellent 159% 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.

Turning to the outlook, the next year should generate growth of 24% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 22%, which is not materially different.

In light of this, it's peculiar that China Hainan Rubber Industry GroupLtd's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

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've seen that China Hainan Rubber Industry GroupLtd currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

There are also other vital risk factors to consider and we've discovered 2 warning signs for China Hainan Rubber Industry GroupLtd (1 is a bit unpleasant!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on China Hainan Rubber Industry GroupLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.