Why Investors Shouldn't Be Surprised By Henan Hengxing Science & Technology Co.,Ltd.'s (SZSE:002132) 30% Share Price Surge

Despite an already strong run, Henan Hengxing Science & Technology Co.,Ltd. (SZSE:002132) shares have been powering on, with a gain of 30% in the last thirty days. The last 30 days bring the annual gain to a very sharp 33%.

Even after such a large jump in price, there still wouldn't be many who think Henan Hengxing Science & TechnologyLtd's price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S in China's Metals and Mining industry is similar at about 1.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Henan Hengxing Science & TechnologyLtd

How Has Henan Hengxing Science & TechnologyLtd Performed Recently?

The revenue growth achieved at Henan Hengxing Science & TechnologyLtd over the last year would be more than acceptable for most companies. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

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 Henan Hengxing Science & TechnologyLtd's earnings, revenue and cash flow.

How Is Henan Hengxing Science & TechnologyLtd's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Henan Hengxing Science & TechnologyLtd's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 17% 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. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 14% shows it's about the same on an annualised basis.

With this in consideration, it's clear to see why Henan Hengxing Science & TechnologyLtd's P/S matches up closely to its industry peers. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

What Does Henan Hengxing Science & TechnologyLtd's P/S Mean For Investors?

Henan Hengxing Science & TechnologyLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

It appears to us that Henan Hengxing Science & TechnologyLtd maintains its moderate P/S off the back of its recent three-year growth being in line with the wider industry forecast. Currently, with a past revenue trend that aligns closely wit the industry outlook, shareholders are confident the company's future revenue outlook won't contain any major surprises. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Henan Hengxing Science & TechnologyLtd (1 is potentially serious!) that you should be aware of before investing here.

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.