Angang Steel Company Limited (HKG:347) Stock Rockets 25% As Investors Are Less Pessimistic Than Expected

Angang Steel Company Limited (HKG:347) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 30% in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think Angang Steel's price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Hong Kong's Metals and Mining industry is similar at about 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Angang Steel

What Does Angang Steel's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Angang Steel's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The P/S Ratio?

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

Retrospectively, the last year delivered a frustrating 9.9% decrease to the company's top line. As a result, revenue from three years ago have also fallen 15% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 1.2% during the coming year according to the eight analysts following the company. Meanwhile, the broader industry is forecast to expand by 14%, which paints a poor picture.

With this information, we find it concerning that Angang Steel is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What We Can Learn From Angang Steel's P/S?

Angang Steel's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It appears that Angang Steel currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

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

If these risks are making you reconsider your opinion on Angang Steel, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.