Henan Ancai Hi-Tech Co.,Ltd's (SHSE:600207) 25% Dip In Price Shows Sentiment Is Matching Revenues

Henan Ancai Hi-Tech Co.,Ltd (SHSE:600207) shares have had a horrible month, losing 25% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 17% share price drop.

After such a large drop in price, Henan Ancai Hi-TechLtd may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.9x, since almost half of all companies in the Electronic industry in China have P/S ratios greater than 4x and even P/S higher than 8x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

View our latest analysis for Henan Ancai Hi-TechLtd

What Does Henan Ancai Hi-TechLtd's Recent Performance Look Like?

Henan Ancai Hi-TechLtd could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. 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 Henan Ancai Hi-TechLtd's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Henan Ancai Hi-TechLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Henan Ancai Hi-TechLtd's is when the company's growth is on track to lag the industry decidedly.

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 15%. Even so, admirably revenue has lifted 44% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 13% over the next year. With the industry predicted to deliver 26% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Henan Ancai Hi-TechLtd's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Shares in Henan Ancai Hi-TechLtd have plummeted and its P/S has followed suit. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As expected, our analysis of Henan Ancai Hi-TechLtd's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. 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.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Henan Ancai Hi-TechLtd with six simple checks on some of these key factors.

If you're unsure about the strength of Henan Ancai Hi-TechLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.