Cautious Investors Not Rewarding Hoyuan Green Energy Co., Ltd.'s (SHSE:603185) Performance Completely

With a price-to-sales (or "P/S") ratio of 1.4x Hoyuan Green Energy Co., Ltd. (SHSE:603185) may be sending very bullish signals at the moment, given that almost half of all the Semiconductor companies in China have P/S ratios greater than 7x and even P/S higher than 13x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Hoyuan Green Energy

How Hoyuan Green Energy Has Been Performing

While the industry has experienced revenue growth lately, Hoyuan Green Energy's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Hoyuan Green Energy will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as Hoyuan Green Energy's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a frustrating 46% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 12% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 86% as estimated by the two analysts watching the company. With the industry only predicted to deliver 50%, the company is positioned for a stronger revenue result.

With this information, we find it odd that Hoyuan Green Energy is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Hoyuan Green Energy's P/S

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Hoyuan Green Energy's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Hoyuan Green Energy that you need to be mindful 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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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.