Huabong Technology Holding Co., Ltd. (HKG:3638) Earnings don't tell the story after a 30% rise in stock price

Despite having good results to begin with, Huabang Technology Holdings Limited (HKG:3638) stock is performing well, up 30% in the past 30 days. Not all shareholders are overjoyed, as the share price is still down 35% in the past 12 months.

Although the price has skyrocketed, not many people still think Huabong Technology Holdings' price to sales (or “P/S”) of 0.8 times is noteworthy given Hong Kong's median P/S. Dew. The electronic industry has a similar ratio of about 0.4 times. This may not raise any eyebrows, but if the P/S ratio is not justified, investors may miss out on potential opportunities or ignore impending disappointment.

Check out our latest analysis for Huabang Technology Holdings.

What does Huabang Technology Holdings' P/S mean for shareholders?

As an example, Huabang Technology Holdings' earnings have deteriorated over the past year, which is not ideal at all. One possibility is that the P/S is moderate because investors believe the company can perform well enough to keep pace with the broader industry in the near future. . If you like the company, you'll at least hope that happens so that you have a chance to buy the stock while it's not very lucrative.

Want a complete picture of a company's earnings, revenue and cash flow? Then check out our free The report on Huabang Technology Holdings helps shed light on its historical achievements.

Does Huabang Technology Holdings have some expected earnings growth?

There is an inherent assumption that for a profit and loss ratio like Huabang Technology Holdings' to be considered reasonable, a company needs to be in line with its industry.

When we reviewed last year's financials, we were disappointed to see that our revenue declined by 9.9%. This means that earnings are falling over the long term as well, with earnings down a total of 46% over the past three years. Therefore, shareholders would have been disappointed with the medium-term earnings growth rate.

In contrast to the company, the rest of the industry is expected to grow by 13% over the next year, which truly takes into account the company's recent medium-term revenue decline.

With this in mind, we are concerned that Huabang Technology Holdings' P&L is higher than that of its peers. Apparently, many of the company's investors are far less bearish than they have been lately, and aren't willing to exit the stock any time soon. Only the boldest would think these prices are sustainable, as a continuation of recent earnings trends will likely ultimately weigh on the stock price.

The last word

Huabong Science and Technology Holdings appears to be returning to popularity with solid price increases, and its P/L is back in line with its peers.The power of the price-to-sales ratio is not primarily used as a valuation tool, but rather as an asset to current investors. to assess sentiment and future expectations.

The fact that Huabang Technology Holdings is currently trading on a P&L in line with other companies in the industry is surprising to us, as while the industry is growing, recent revenues have been declining over the medium term. . Given that earnings are trending in the opposite direction in the context of industry growth forecasts, it makes sense to expect the stock price to fall and the P/S to potentially decline modestly in the near term. Unless the recent medium-term situation improves, it is not wrong to expect that the company's shareholders will continue to have difficult times going forward.

Additionally, you should also learn about these 4 warning signs we've spotted with Huabang Technology Holdings (Including two that should not be ignored).

In these cases Risks should make you reconsider your opinion about Huabang Technology Holdingsexplore our interactive list of quality stocks to see 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 using only unbiased methodologies, 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.