China Harmony Auto Holding Limited (HKG:3836) Stock's 27% Dive Might Signal An Opportunity But It Requires Some Scrutiny

China Harmony Auto Holding Limited (HKG:3836) shares have retraced a considerable 27% in the last month, reversing a fair amount of their solid recent performance. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 250% in the last twelve months.

In spite of the heavy fall in price, there still wouldn't be many who think China Harmony Auto Holding's price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Hong Kong's Specialty Retail industry is similar at about 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.

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Check out our latest analysis for China Harmony Auto Holding

What Does China Harmony Auto Holding's P/S Mean For Shareholders?

Recent times haven't been great for China Harmony Auto Holding as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think China Harmony Auto Holding'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?

China Harmony Auto Holding's 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.

If we review the last year of revenue growth, the company posted a worthy increase of 12%. The latest three year period has also seen a 7.5% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 87% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 41%, which is noticeably less attractive.

With this information, we find it interesting that China Harmony Auto Holding is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On China Harmony Auto Holding's P/S

With its share price dropping off a cliff, the P/S for China Harmony Auto Holding looks to be in line with the rest of the Specialty Retail 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.

We've established that China Harmony Auto Holding currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Plus, you should also learn about these 2 warning signs we've spotted with China Harmony Auto Holding.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.