Jiangsu Huahong Technology Co., Ltd. (SZSE:002645) shareholders will be thrilled to see the stock has had a great month, posting a 35% rise and recovering from its previous slump. Unfortunately, last month’s gains did little to make up for last year’s losses, with the stock still down 27% in that time.
Even after such a significant price increase, Jiangsu Huahong Technology still sends a buy signal with a price-to-sales (P/S) ratio of 0.9 times, considering almost half of all companies in the machinery industry. There is a possibility. In China, the P/S multiple is over 2.8x, and it is not uncommon for P/S to exceed 5x. Nevertheless, we need to dig a little deeper to determine whether there is a rational basis for the decline in P/S.
Check out our latest analysis for Jiangsu Huahong Technology.
Jiangsu Huahong Technology’s achievements
Although the industry has recently seen an increase in profits, Jiangsu Huahong Science and Technology’s profits are in reverse rotation and are not very large. Many believe that the slump in profits will continue, which seems to be pushing down the P/S ratio. So while the stock may be cheap, investors will probably want to look for improvements before considering the stock price good.
Want a complete picture of what analysts are forecasting for your company? Then check out our free A report on Jiangsu Huahong Technology will help clarify what’s to come.
Are revenue projections consistent with low profit and loss margins?
There is an inherent assumption that for a profit and loss ratio like Jiangsu Huahong Technology’s to be considered reasonable, a company’s performance must be below that of its industry.
When I reviewed last year’s financials, I was disappointed to see that our revenue declined by 13%. Still, despite the past 12 months, revenue has increased an impressive total of 167% compared to his three years ago. So we can start by confirming that, despite some hiccups along the way, the company has done a very good job of growing its earnings over that time.
Turning to the outlook, analysts closely following the company estimate that the company should deliver 25% growth next year. Meanwhile, the rest of the industry is expected to expand by 24%, which is not much different.
Given this information, it seems strange that Jiangsu Huahong Technology is trading at a lower P/S than its industry. Some shareholders seem to have doubts about this outlook and are willing to accept a lower selling price.
The last word
Although Jiangsu Huahong Technology’s stock price has soared recently, its profit and loss remains low. It has been argued that the price-to-sales ratio, while a poor measure of value in certain industries, can be a powerful indicator of business confidence.
Jiangsu Huahong Technology’s expected growth rate is in line with the broader industry, which means it’s currently trading at a lower-than-expected P/S. Looking at such middling earnings growth, we think it must be underlying risks that are putting pressure on the P/S ratio. Investors are probably concerned that the company’s results may fall short of expectations in the short term.
It is also noteworthy that we discovered 2 warning signs for Jiangsu Huahong Technology (1 should not be ignored!) Must be considered.
A company with a history of solid revenue growth will meet your needs.you might want to see this free A collection of other companies with high earnings growth and low P/E ratios.
Valuation is complex, but we help make it simple.
Check out our comprehensive analysis, including below, to see if Jiangsu Huahong Technology is potentially overvalued or undervalued. Fair value estimates, risks and caveats, dividends, insider trading, and financial health.
See free analysis
Have feedback on this article? Curious about its content? contact Please contact us directly. Alternatively, email our editorial team at Simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
