Little Excitement Around Henan Ancai Hi-Tech Co.,Ltd's (SHSE:600207) Revenues

You may think that with a price-to-sales (or "P/S") ratio of 0.8x Henan Ancai Hi-Tech Co.,Ltd (SHSE:600207) is definitely a stock worth checking out, seeing as almost half of all the Electronic companies in China have P/S ratios greater than 3.3x and even P/S above 6x 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.

Check out our latest analysis for Henan Ancai Hi-TechLtd

How Has Henan Ancai Hi-TechLtd Performed Recently?

Henan Ancai Hi-TechLtd certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you 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.

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.

Is There Any Revenue Growth Forecasted For Henan Ancai Hi-TechLtd?

In order to justify its P/S ratio, Henan Ancai Hi-TechLtd would need to produce anemic growth that's substantially trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 15%. The strong recent performance means it was also able to grow revenue by 99% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 14% during the coming year according to the two analysts following the company. With the industry predicted to deliver 29% growth, that's a disappointing outcome.

With this information, we are not surprised that Henan Ancai Hi-TechLtd is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Henan Ancai Hi-TechLtd's P/S

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Henan Ancai Hi-TechLtd's P/S is on the lower end of the spectrum. 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.

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

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.