HY Energy Group Co.,Ltd (SHSE:600387) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 40% share price drop.

Even after such a large drop in price, considering around half the companies operating in China's Oil and Gas industry have price-to-sales ratios (or "P/S") above 1.1x, you may still consider HY Energy GroupLtd as an solid investment opportunity with its 0.6x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does HY Energy GroupLtd's Recent Performance Look Like?

For example, consider that HY Energy GroupLtd's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on HY Energy GroupLtd will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Is There Any Revenue Growth Forecasted For HY Energy GroupLtd?

In order to justify its P/S ratio, HY Energy GroupLtd would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 53%. As a result, revenue from three years ago have also fallen 46% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 2.4% shows it's an unpleasant look.

With this information, we are not surprised that HY Energy GroupLtd is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does HY Energy GroupLtd's P/S Mean For Investors?

HY Energy GroupLtd's recently weak share price has pulled its P/S back below other Oil and Gas companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of HY Energy GroupLtd revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

You should always think about risks. Case in point, we've spotted 2 warning signs for HY Energy GroupLtd you should be aware of, and 1 of them is significant.

If you're unsure about the strength of HY Energy GroupLtd'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.