Haoyun Technologies Co.,Ltd.'s (SZSE:300448) Shares Climb 43% But Its Business Is Yet to Catch Up

Despite an already strong run, Haoyun Technologies Co.,Ltd. (SZSE:300448) shares have been powering on, with a gain of 43% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 63% in the last year.

After such a large jump in price, given around half the companies in China's Software industry have price-to-sales ratios (or "P/S") below 7.5x, you may consider Haoyun TechnologiesLtd as a stock to avoid entirely with its 18.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Haoyun TechnologiesLtd

What Does Haoyun TechnologiesLtd's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Haoyun TechnologiesLtd over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Haoyun TechnologiesLtd's earnings, revenue and cash flow.

How Is Haoyun TechnologiesLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Haoyun TechnologiesLtd's is when the company's growth is on track to outshine the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 22%. As a result, revenue from three years ago have also fallen 40% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 32% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we find it worrying that Haoyun TechnologiesLtd's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Haoyun TechnologiesLtd's P/S?

Shares in Haoyun TechnologiesLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 Haoyun TechnologiesLtd currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Haoyun TechnologiesLtd 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.