Risks To Shareholder Returns Are Elevated At These Prices For China Hanking Holdings Limited (HKG:3788)

With a median price-to-sales (or "P/S") ratio of close to 0.5x in the Metals and Mining industry in Hong Kong, you could be forgiven for feeling indifferent about China Hanking Holdings Limited's (HKG:3788) P/S ratio, which comes in at about the same. 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 China Hanking Holdings

How Has China Hanking Holdings Performed Recently?

As an illustration, revenue has deteriorated at China Hanking Holdings over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on China Hanking Holdings' earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 5.6%. Regardless, revenue has managed to lift by a handy 23% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 9.4% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that China Hanking Holdings' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From China Hanking Holdings' P/S?

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 China Hanking Holdings revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

It is also worth noting that we have found 3 warning signs for China Hanking Holdings (1 is significant!) that you need to take into consideration.

If these risks are making you reconsider your opinion on China Hanking Holdings, 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.