person who has Zhejiang Hechuan Technology Co., Ltd. (SHSE:688320)'s share price has rebounded 25% in the past 30 days, which should be reassuring, but it needs to continue repairing the recent damage it has done to investors' portfolios. Not all shareholders are overjoyed, as the share price is still down 24% in the last 12 months.

Despite the solid price rebound, it's understandable to be indifferent to Zhejiang Hechuan Technology's P/S ratio of 4.5x. This is because it is the electronics industry's median price-to-sales (or “P/S”) ratio. In China, the number is close to 3.7 times. However, it is unwise to simply ignore the income statement without explanation, as investors may be ignoring clear opportunities or costly mistakes.

Check out our latest analysis for Zhejiang Hechuan Technology.

SHSE:688320 Price vs. Sales vs. Industry March 3, 2024

How is Zhejiang Hechuan Technology's recent performance?

Zhejiang Hechuan Technology has been doing relatively well, with revenue growth outpacing most other companies recently. One possibility is that the P/S ratio is moderate because investors believe this strong earnings performance may be about to wear off. If the company can maintain its course, investors should be rewarded with a stock price commensurate with its earnings.

If you want to know what analysts are predicting for the future, check out this article. free Report on Zhejiang Hechuan Technology.

Does the earnings forecast match the P/S ratio?

Zhejiang Hechuan Technology's P/S ratio is typical for a company that is only expected to grow moderately and, importantly, is expected to perform in line with its industry.

Looking back, the company achieved an unusual 19% increase in revenue last year. Pleasingly, thanks to the growth over the past 12 months, revenue has also increased by a total of 107% compared to his three years ago. So it's safe to say that the company's recent revenue growth has been impressive.

Turning to the outlook, the two analysts monitoring the company estimate that next year should deliver 13% growth. On the other hand, the rest of the industry is predicted to expand by 26%, which is significantly more attractive.

With this information, we find it interesting that Zhejiang Hechuan Technology is trading at a similar P/S compared to its industry. It appears that many investors in the company aren't as bearish as analysts suggest, and aren't willing to exit the stock right away. This level of revenue growth is likely to eventually weigh on the stock, making it difficult to sustain this price.

Zhejiang Hechuan Technology P/S Conclusion

The company's stock price has increased significantly, and Zhejiang Hechuan Technology's profit and loss are now back within the industry median range. Generally, we prefer to limit the use of price-to-sales ratios to establish what the market thinks about a company's overall health.

After examining analyst forecasts for Zhejiang Hechuan Technology's earnings outlook, we found that the poor earnings outlook hasn't had as much of a negative impact on the company's bottom line as expected. At this point, we don't have confidence in the P/S as projected future earnings are unlikely to support more positive sentiment over the long term. This situation poses a risk to current and future investors, who could see the stock price decline if low earnings growth impacts sentiment.

It turns out there are other important risk factors to consider before investing. 1 warning sign for Zhejiang Hechuan Technology What you need to know.

the important thing is, Make sure to look for great companies, not just the first idea you come across. So if increasing profitability matches your idea of ​​a great company, give this one a peek. free A list of interesting companies with high recent 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 Zhejiang Hechuan Technology is potentially overvalued or undervalued. Fair value estimates, risks and caveats, dividends, insider trading, and financial health.

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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.

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