Shenzhen Huaqiang Industry Co., Ltd. (SZSE:000062) Not Doing Enough For Some Investors As Its Shares Slump 29%

Shenzhen Huaqiang Industry Co., Ltd. (SZSE:000062) shares have retraced a considerable 29% in the last month, reversing a fair amount of their solid recent performance. The good news is that in the last year, the stock has shone bright like a diamond, gaining 162%.

In spite of the heavy fall in price, Shenzhen Huaqiang Industry may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.4x, considering 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 aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for Shenzhen Huaqiang Industry

How Has Shenzhen Huaqiang Industry Performed Recently?

Shenzhen Huaqiang Industry has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shenzhen Huaqiang Industry will help you shine a light on its historical performance.

How Is Shenzhen Huaqiang Industry's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Shenzhen Huaqiang Industry's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered an exceptional 15% gain to the company's top line. As a result, it also grew revenue by 13% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 26% shows it's noticeably less attractive.

With this information, we can see why Shenzhen Huaqiang Industry is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Final Word

Shenzhen Huaqiang Industry's P/S looks about as weak as its stock price lately. 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.

In line with expectations, Shenzhen Huaqiang Industry maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

You should always think about risks. Case in point, we've spotted 5 warning signs for Shenzhen Huaqiang Industry you should be aware of, and 3 of them don't sit too well with us.

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.