Hanma Technology Group Co.,Ltd. (SHSE:600375) shares have continued their recent momentum with a 27% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 12% is also fairly reasonable.

Even after such a large jump in price, Hanma Technology GroupLtd may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1x, since almost half of all companies in the Machinery industry in China have P/S ratios greater than 3.1x and even P/S higher than 6x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

How Has Hanma Technology GroupLtd Performed Recently?

Revenue has risen firmly for Hanma Technology GroupLtd recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Hanma Technology GroupLtd?

In order to justify its P/S ratio, Hanma Technology GroupLtd would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 15% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 22% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 26% shows it's an unpleasant look.

With this information, we are not surprised that Hanma Technology GroupLtd is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

Even after such a strong price move, Hanma Technology GroupLtd's P/S still trails the rest of the industry. 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.

Our examination of Hanma Technology GroupLtd confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for Hanma Technology GroupLtd you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.