Despite an already strong run, Hunan Corun New Energy Co., Ltd. (SHSE:600478) shares have been powering on, with a gain of 29% in the last thirty days. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 8.6% over the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Hunan Corun New Energy's price-to-sales (or "P/S") ratio of 2.2x right now seems quite "middle-of-the-road" compared to the Electrical industry in China, where the median P/S ratio is around 2.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Hunan Corun New Energy Has Been Performing

For instance, Hunan Corun New Energy's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

What Are Revenue Growth Metrics Telling Us About The P/S?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Hunan Corun New Energy's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 3.0% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 29% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Comparing that to the industry, which is predicted to deliver 26% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's curious that Hunan Corun New Energy's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Bottom Line On Hunan Corun New Energy's P/S

Its shares have lifted substantially and now Hunan Corun New Energy's P/S is back within range of the industry median. 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 Hunan Corun New Energy revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

Before you settle on your opinion, we've discovered 1 warning sign for Hunan Corun New Energy that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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