Henan Jinyuan Hydrogenated Chemicals Co., Ltd. (HKG:2502) Stock Rockets 36% But Many Are Still Ignoring The Company

Those holding Henan Jinyuan Hydrogenated Chemicals Co., Ltd. (HKG:2502) shares would be relieved that the share price has rebounded 36% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 49% over that time.

In spite of the firm bounce in price, it's still not a stretch to say that Henan Jinyuan Hydrogenated Chemicals' price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Chemicals industry in Hong Kong, where the median P/S ratio is around 0.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

We've discovered 3 warning signs about Henan Jinyuan Hydrogenated Chemicals. View them for free.

View our latest analysis for Henan Jinyuan Hydrogenated Chemicals

What Does Henan Jinyuan Hydrogenated Chemicals' P/S Mean For Shareholders?

Henan Jinyuan Hydrogenated Chemicals certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. 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 not quite in favour.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

Henan Jinyuan Hydrogenated Chemicals' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company grew revenue by an impressive 33% last year. Pleasingly, revenue has also lifted 110% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 3.9% shows it's noticeably more attractive.

With this information, we find it interesting that Henan Jinyuan Hydrogenated Chemicals is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Henan Jinyuan Hydrogenated Chemicals' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Henan Jinyuan Hydrogenated Chemicals currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Henan Jinyuan Hydrogenated Chemicals (1 is a bit concerning!) that you should be aware of before investing here.

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).

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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.