Hunan Zhongke Electric Co., Ltd. (SZSE:300035) shares have had a really impressive month, gaining 31% after a shaky period beforehand. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

In spite of the firm bounce in price, Hunan Zhongke Electric may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.5x, 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. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does Hunan Zhongke Electric's Recent Performance Look Like?

Hunan Zhongke Electric 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. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Is There Any Revenue Growth Forecasted For Hunan Zhongke Electric?

In order to justify its P/S ratio, Hunan Zhongke Electric would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 9.6% decrease to the company's top line. Even so, admirably revenue has lifted 245% in aggregate from three years ago, notwithstanding the last 12 months. 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.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 16% over the next year. That's shaping up to be materially lower than the 23% growth forecast for the broader industry.

In light of this, it's understandable that Hunan Zhongke Electric's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Hunan Zhongke Electric's P/S Mean For Investors?

Hunan Zhongke Electric's stock price has surged recently, but its but its P/S still remains modest. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Hunan Zhongke Electric's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Hunan Zhongke Electric.

If these risks are making you reconsider your opinion on Hunan Zhongke Electric, 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.