Haina Intelligent Equipment International Holdings Limited's (HKG:1645) price-to-sales (or "P/S") ratio of 1.4x may not look like an appealing investment opportunity when you consider close to half the companies in the Machinery industry in Hong Kong have P/S ratios below 0.6x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.
How Has Haina Intelligent Equipment International Holdings Performed Recently?
We'd have to say that with no tangible growth over the last year, Haina Intelligent Equipment International Holdings' revenue has been unimpressive. Perhaps the market believes that revenue growth will improve markedly over current levels, inflating the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.Although there are no analyst estimates available for Haina Intelligent Equipment International Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
How Is Haina Intelligent Equipment International Holdings' Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as high as Haina Intelligent Equipment International Holdings' is when the company's growth is on track to outshine the industry.
Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Regardless, revenue has managed to lift by a handy 5.2% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Comparing that to the industry, which is predicted to deliver 15% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.
With this in mind, we find it worrying that Haina Intelligent Equipment International Holdings' P/S exceeds that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. 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.
The Final Word
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 examination of Haina Intelligent Equipment International Holdings revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Haina Intelligent Equipment International Holdings (1 makes us a bit uncomfortable) you should be aware of.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
Valuation is complex, but we're helping make it simple.
Find out whether Haina Intelligent Equipment International Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.
Haina Intelligent Equipment International Holdings
Haina Intelligent Equipment International Holdings Limited, an investment holding company, engages in the design and production of automated machines for manufacturing disposable hygiene products.
Excellent balance sheet and slightly overvalued.