Slammed 25% Shanghai HIUV New Materials Co.,Ltd (SHSE:688680) Screens Well Here But There Might Be A Catch

Shanghai HIUV New Materials Co.,Ltd (SHSE:688680) shares have had a horrible month, losing 25% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 57% share price decline.

Since its price has dipped substantially, it would be understandable if you think Shanghai HIUV New MaterialsLtd is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.8x, considering almost half the companies in China's Chemicals industry have P/S ratios above 2.2x. 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 Shanghai HIUV New MaterialsLtd

How Has Shanghai HIUV New MaterialsLtd Performed Recently?

Shanghai HIUV New MaterialsLtd could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Shanghai HIUV New MaterialsLtd'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?

Shanghai HIUV New MaterialsLtd'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.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 42%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 16% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 121% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 25% growth forecast for the broader industry.

With this information, we find it odd that Shanghai HIUV New MaterialsLtd is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Shanghai HIUV New MaterialsLtd's P/S

Shanghai HIUV New MaterialsLtd's recently weak share price has pulled its P/S back below other Chemicals 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.

Shanghai HIUV New MaterialsLtd'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. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Shanghai HIUV New MaterialsLtd (of which 1 shouldn't be ignored!) you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.