Henan Yicheng New Energy Co., Ltd. (SZSE:300080) Shares Fly 28% But Investors Aren't Buying For Growth

Henan Yicheng New Energy Co., Ltd. (SZSE:300080) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 30% over that time.

In spite of the firm bounce in price, Henan Yicheng New Energy's price-to-sales (or "P/S") ratio of 0.9x might still make it look like a buy right now compared to the Chemicals industry in China, where around half of the companies have P/S ratios above 1.7x and even P/S above 4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Henan Yicheng New Energy

What Does Henan Yicheng New Energy's P/S Mean For Shareholders?

For instance, Henan Yicheng New Energy's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic 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 Yicheng New Energy's earnings, revenue and cash flow.

How Is Henan Yicheng New Energy's Revenue Growth Trending?

In order to justify its P/S ratio, Henan Yicheng New Energy would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 39% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 35% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the industry, which is expected to grow by 22% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Henan Yicheng New Energy's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Henan Yicheng New Energy's P/S?

Despite Henan Yicheng New Energy's share price climbing recently, its P/S still lags most other companies. 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.

In line with expectations, Henan Yicheng New Energy maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Henan Yicheng New Energy you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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