Suzhou Hycan Holdings Co., Ltd. (SZSE:002787) shareholders have had their patience rewarded with a 33% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 2.6% isn't as attractive.

In spite of the firm bounce in price, Suzhou Hycan Holdings may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.1x, since almost half of all companies in the Packaging industry in China have P/S ratios greater than 1.7x and even P/S higher than 4x 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 Suzhou Hycan Holdings' P/S Mean For Shareholders?

The revenue growth achieved at Suzhou Hycan Holdings over the last year would be more than acceptable for most companies. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If you 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.

How Is Suzhou Hycan Holdings' Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Suzhou Hycan Holdings' to be considered reasonable.

Retrospectively, the last year delivered a decent 7.6% gain to the company's revenues. Revenue has also lifted 15% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 17% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why Suzhou Hycan Holdings is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Key Takeaway

The latest share price surge wasn't enough to lift Suzhou Hycan Holdings' P/S close to the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Suzhou Hycan Holdings revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

You should always think about risks. Case in point, we've spotted 2 warning signs for Suzhou Hycan Holdings you should be aware of, and 1 of them is a bit concerning.

If these risks are making you reconsider your opinion on Suzhou Hycan Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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