Jiangsu Huahong Technology Co., Ltd. (SZSE:002645) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 17% in the last twelve months.

In spite of the firm bounce in price, Jiangsu Huahong Technology may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.7x, since almost half of all companies in the Machinery industry in China have P/S ratios greater than 2.5x and even P/S higher than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Jiangsu Huahong Technology's Recent Performance Look Like?

Jiangsu Huahong Technology hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Is There Any Revenue Growth Forecasted For Jiangsu Huahong Technology?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Jiangsu Huahong Technology's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 18% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 13% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 11% as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 23%, which is noticeably more attractive.

With this in consideration, its clear as to why Jiangsu Huahong Technology's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Jiangsu Huahong Technology's P/S

Despite Jiangsu Huahong Technology's share price climbing recently, its P/S still lags most other companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As expected, our analysis of Jiangsu Huahong Technology's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Jiangsu Huahong Technology that you should be aware of.

If you're unsure about the strength of Jiangsu Huahong Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.