Henan Hengxing Science & Technology Co.,Ltd.'s (SZSE:002132) Shares Not Telling The Full Story

Henan Hengxing Science & Technology Co.,Ltd.'s (SZSE:002132) price-to-sales (or "P/S") ratio of 0.7x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Metals and Mining industry in China have P/S ratios greater than 1.3x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Henan Hengxing Science & TechnologyLtd

How Has Henan Hengxing Science & TechnologyLtd Performed Recently?

Revenue has risen firmly for Henan Hengxing Science & TechnologyLtd recently, which is pleasing to see. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. Those who are bullish on Henan Hengxing Science & TechnologyLtd 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 Henan Hengxing Science & TechnologyLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Henan Hengxing Science & TechnologyLtd?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Henan Hengxing Science & TechnologyLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 18% gain to the company's top line. The latest three year period has also seen an excellent 52% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 13% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it odd that Henan Hengxing Science & TechnologyLtd is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We're very surprised to see Henan Hengxing Science & TechnologyLtd currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. It appears many 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 4 warning signs for Henan Hengxing Science & TechnologyLtd (1 shouldn't be ignored!) that you need to take into consideration.

If you're unsure about the strength of Henan Hengxing Science & TechnologyLtd'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.