Fewer Investors Than Expected Jumping On Huitongda Network Co., Ltd. (HKG:9878)

With a median price-to-sales (or "P/S") ratio of close to 0.5x in the Trade Distributors industry in Hong Kong, you could be forgiven for feeling indifferent about Huitongda Network Co., Ltd.'s (HKG:9878) P/S ratio of 0.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Huitongda Network

How Huitongda Network Has Been Performing

Huitongda Network certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. One possibility is that the P/S ratio is moderate because investors think the company's revenue will be less resilient moving forward. Those who are bullish on Huitongda Network will be hoping that this isn't the case, so that they can pick up the stock at a slightly lower valuation.

Keen to find out how analysts think Huitongda Network's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Huitongda Network's Revenue Growth Trending?

In order to justify its P/S ratio, Huitongda Network would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 22% last year. The strong recent performance means it was also able to grow revenue by 84% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the five analysts covering the company suggest revenue growth will be highly resilient over the next three years growing by 17% per annum. With the rest of the industry predicted to shrink by 0.4% each year, that would be a fantastic result.

In light of this, it's peculiar that Huitongda Network's P/S sits in-line with the majority of other companies. Apparently some shareholders are skeptical of the contrarian forecasts and have been accepting lower selling prices.

The Key Takeaway

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.

We note that even though Huitongda Network trades at a similar P/S as the rest of the industry, it far eclipses them in terms of forecasted revenue growth. We assume that investors are attributing some risk to the company's future revenues, keeping it from trading at a higher P/S. Perhaps there is some hesitation about the company's ability to keep swimming against the current of the broader industry turmoil. It appears some are indeed anticipating revenue instability, because the company's current prospects should normally provide a boost to the share price.

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

If you're unsure about the strength of Huitongda Network'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.