Huayuan Property Co.,Ltd.'s (SHSE:600743) Share Price Boosted 27% But Its Business Prospects Need A Lift Too

Despite an already strong run, Huayuan Property Co.,Ltd. (SHSE:600743) shares have been powering on, with a gain of 27% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 47% in the last year.

Even after such a large jump in price, Huayuan PropertyLtd's price-to-sales (or "P/S") ratio of 0.4x might still make it look like a buy right now compared to the Real Estate industry in China, where around half of the companies have P/S ratios above 2.4x and even P/S above 6x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Huayuan PropertyLtd

What Does Huayuan PropertyLtd's Recent Performance Look Like?

Huayuan PropertyLtd has been doing a good job lately as it's been growing revenue at a solid pace. 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 Huayuan PropertyLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Huayuan PropertyLtd's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Huayuan PropertyLtd?

In order to justify its P/S ratio, Huayuan PropertyLtd would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 10% last year. The latest three year period has also seen a 25% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 12% shows it's noticeably less attractive.

In light of this, it's understandable that Huayuan PropertyLtd'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 Does Huayuan PropertyLtd's P/S Mean For Investors?

Despite Huayuan PropertyLtd'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.

As we suspected, our examination of Huayuan PropertyLtd revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. 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 need to take note of risks, for example - Huayuan PropertyLtd has 3 warning signs (and 2 which are potentially serious) we think you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.