Hoyuan Green Energy Co., Ltd. (SHSE:603185) Stock Rockets 40% But Many Are Still Ignoring The Company

Hoyuan Green Energy Co., Ltd. (SHSE:603185) shareholders would be excited to see that the share price has had a great month, posting a 40% gain and recovering from prior weakness. But the last month did very little to improve the 56% share price decline over the last year.

Although its price has surged higher, Hoyuan Green Energy's price-to-sales (or "P/S") ratio of 1.4x might still make it look like a strong buy right now compared to the wider Semiconductor industry in China, where around half of the companies have P/S ratios above 6.2x and even P/S above 11x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View 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. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Keen to find out how analysts think Hoyuan Green Energy's future stacks up against the industry? In that case, our free report is a great place to start.

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

Hoyuan Green Energy's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered a frustrating 51% decrease to the company's top line. Still, the latest three year period has seen an excellent 58% overall rise in revenue, in spite of its unsatisfying short-term performance. 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.

Turning to the outlook, the next year should generate growth of 44% as estimated by the dual analysts watching the company. With the industry only predicted to deliver 36%, 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

Shares in Hoyuan Green Energy have risen appreciably however, its P/S is still subdued. 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. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Hoyuan Green Energy, and understanding should be part of your investment process.

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

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