Hang Zhou Iron & Steel Co.,Ltd. (SHSE:600126) shares have had a horrible month, losing 28% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 18% in that time.

Although its price has dipped substantially, considering around half the companies operating in China's Metals and Mining industry have price-to-sales ratios (or "P/S") above 1.1x, you may still consider Hang Zhou Iron & SteelLtd as an solid investment opportunity with its 0.3x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Hang Zhou Iron & SteelLtd Has Been Performing

For example, consider that Hang Zhou Iron & SteelLtd's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

How Is Hang Zhou Iron & SteelLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Hang Zhou Iron & SteelLtd's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 2.0%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 54% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 15% shows it's about the same on an annualised basis.

In light of this, it's peculiar that Hang Zhou Iron & SteelLtd's P/S sits below the majority of other companies. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

What Does Hang Zhou Iron & SteelLtd's P/S Mean For Investors?

Hang Zhou Iron & SteelLtd's P/S has taken a dip along with its share price. 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 Hang Zhou Iron & SteelLtd revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

There are also other vital risk factors to consider and we've discovered 5 warning signs for Hang Zhou Iron & SteelLtd (3 are potentially serious!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.