Haina Intelligent Equipment International Holdings Limited (HKG:1645) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 48% in the last year.

Since its price has surged higher, you could be forgiven for thinking Haina Intelligent Equipment International Holdings is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.1x, considering almost half the companies in Hong Kong's Machinery industry have P/S ratios below 0.6x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

How Haina Intelligent Equipment International Holdings Has Been Performing

For example, consider that Haina Intelligent Equipment International Holdings' financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is Haina Intelligent Equipment International Holdings' Revenue Growth Trending?

Haina Intelligent Equipment International Holdings' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered a frustrating 12% decrease to the company's top line. As a result, revenue from three years ago have also fallen 26% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 12% shows it's an unpleasant look.

With this in mind, we find it worrying that Haina Intelligent Equipment International Holdings' P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Haina Intelligent Equipment International Holdings' P/S

Haina Intelligent Equipment International Holdings' P/S is on the rise since its shares have risen strongly. 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.

Our examination of Haina Intelligent Equipment International Holdings revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Haina Intelligent Equipment International Holdings that you should be aware of.

If these risks are making you reconsider your opinion on Haina Intelligent Equipment International Holdings, explore our interactive list of high quality stocks to get an idea of 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 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.