With a median price-to-sales (or "P/S") ratio of close to 1x in the Construction industry in China, you could be forgiven for feeling indifferent about Hainan Development HoldingsNanhai Co., Ltd.'s (SZSE:002163) P/S ratio of 1.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

What Does Hainan Development HoldingsNanhai's Recent Performance Look Like?

Hainan Development HoldingsNanhai certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Do Revenue Forecasts Match The P/S Ratio?

Hainan Development HoldingsNanhai's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 10.0%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 1.5% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 32% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 13%, which is noticeably less attractive.

In light of this, it's curious that Hainan Development HoldingsNanhai's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Hainan Development HoldingsNanhai's P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Hainan Development HoldingsNanhai currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Before you settle on your opinion, we've discovered 1 warning sign for Hainan Development HoldingsNanhai that you should be aware of.

If you're unsure about the strength of Hainan Development HoldingsNanhai'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com