Revenues Not Telling The Story For Maanshan Iron & Steel Company Limited (HKG:323) After Shares Rise 62%

Maanshan Iron & Steel Company Limited (HKG:323) shares have had a really impressive month, gaining 62% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 21% is also fairly reasonable.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Maanshan Iron & Steel's P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Metals and Mining industry in Hong Kong is also close to 0.5x. 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.

See our latest analysis for Maanshan Iron & Steel

How Maanshan Iron & Steel Has Been Performing

Maanshan Iron & Steel hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Want the full picture on analyst estimates for the company? Then our free report on Maanshan Iron & Steel will help you uncover what's on the horizon.

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

There's an inherent assumption that a company should be matching the industry for P/S ratios like Maanshan Iron & Steel's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 1.9% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 8.0% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 5.0% as estimated by the six analysts watching the company. That's not great when the rest of the industry is expected to grow by 14%.

With this information, we find it concerning that Maanshan Iron & Steel is trading at a fairly similar P/S compared to the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

What We Can Learn From Maanshan Iron & Steel's P/S?

Maanshan Iron & Steel appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

While Maanshan Iron & Steel's P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Maanshan Iron & Steel that 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).

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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.