Hefei Urban Construction Development Co., Ltd (SZSE:002208) Shares Fly 33% But Investors Aren't Buying For Growth

Despite an already strong run, Hefei Urban Construction Development Co., Ltd (SZSE:002208) shares have been powering on, with a gain of 33% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 36% in the last year.

Even after such a large jump in price, Hefei Urban Construction Development may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.8x, since almost half of all companies in the Real Estate industry in China have P/S ratios greater than 2.5x and even P/S higher than 6x are not unusual. 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 Hefei Urban Construction Development

How Has Hefei Urban Construction Development Performed Recently?

Recent times have been quite advantageous for Hefei Urban Construction Development as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be quite 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 Hefei Urban Construction Development's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Hefei Urban Construction Development's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 39% gain to the company's top line. The latest three year period has also seen a 29% overall rise in revenue, aided extensively by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 16% shows it's noticeably less attractive.

In light of this, it's understandable that Hefei Urban Construction Development's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On Hefei Urban Construction Development's P/S

The latest share price surge wasn't enough to lift Hefei Urban Construction Development's P/S close to the industry median. 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.

In line with expectations, Hefei Urban Construction Development 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.

We don't want to rain on the parade too much, but we did also find 6 warning signs for Hefei Urban Construction Development (4 don't sit too well with us!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Hefei Urban Construction Development, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.