There's No Escaping Hainan Drinda New Energy Technology Co., Ltd.'s (SZSE:002865) Muted Revenues Despite A 25% Share Price Rise

Hainan Drinda New Energy Technology Co., Ltd. (SZSE:002865) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 54% share price drop in the last twelve months.

Although its price has surged higher, Hainan Drinda New Energy Technology may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.6x, considering almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 5.1x and even P/S higher than 9x aren't out of the ordinary. 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 Hainan Drinda New Energy Technology

How Has Hainan Drinda New Energy Technology Performed Recently?

Hainan Drinda New Energy Technology hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. 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 Hainan Drinda New Energy Technology will help you uncover what's on the horizon.

How Is Hainan Drinda New Energy Technology's Revenue Growth Trending?

Hainan Drinda New Energy Technology'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.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 5.9%. In spite of this, the company still managed to deliver immense revenue growth over the last three years. Accordingly, shareholders will be pleased, but also have some serious questions to ponder about the last 12 months.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 6.2% over the next year. Meanwhile, the rest of the industry is forecast to expand by 36%, which is noticeably more attractive.

With this in consideration, its clear as to why Hainan Drinda New Energy Technology's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Hainan Drinda New Energy Technology's P/S

Shares in Hainan Drinda New Energy Technology have risen appreciably however, its P/S is still subdued. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Hainan Drinda New Energy Technology maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Hainan Drinda New Energy Technology that 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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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.