Hangzhou Hopechart IoT Technology Co.,Ltd's (SHSE:688288) 29% Price Boost Is Out Of Tune With Revenues

Hangzhou Hopechart IoT Technology Co.,Ltd (SHSE:688288) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 28% over that time.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Hangzhou Hopechart IoT TechnologyLtd's P/S ratio of 4x, since the median price-to-sales (or "P/S") ratio for the Software industry in China is also close to 4.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Hangzhou Hopechart IoT TechnologyLtd

What Does Hangzhou Hopechart IoT TechnologyLtd's Recent Performance Look Like?

Hangzhou Hopechart IoT TechnologyLtd certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling 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 Hangzhou Hopechart IoT TechnologyLtd's earnings, revenue and cash flow.

How Is Hangzhou Hopechart IoT TechnologyLtd's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Hangzhou Hopechart IoT TechnologyLtd's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 77% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 14% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 30% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Hangzhou Hopechart IoT TechnologyLtd's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Hangzhou Hopechart IoT TechnologyLtd's P/S?

Hangzhou Hopechart IoT TechnologyLtd appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look at Hangzhou Hopechart IoT TechnologyLtd revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Hangzhou Hopechart IoT TechnologyLtd you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com