Hefei Metalforming Intelligent Manufacturing Co., Ltd. (SHSE:603011) shares have continued their recent momentum with a 28% gain in the last month alone. Looking further back, the 12% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, Hefei Metalforming Intelligent Manufacturing may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2x, since almost half of all companies in the Machinery industry in China have P/S ratios greater than 3.2x and even P/S higher than 6x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Hefei Metalforming Intelligent Manufacturing Has Been Performing

Revenue has risen firmly for Hefei Metalforming Intelligent Manufacturing 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.

How Is Hefei Metalforming Intelligent Manufacturing's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Hefei Metalforming Intelligent Manufacturing's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 15% gain to the company's top line. The latest three year period has also seen an excellent 88% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

It's interesting to note that the rest of the industry is similarly expected to grow by 25% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we find it odd that Hefei Metalforming Intelligent Manufacturing is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can maintain recent growth rates.

What Does Hefei Metalforming Intelligent Manufacturing's P/S Mean For Investors?

Hefei Metalforming Intelligent Manufacturing'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.

Our examination of Hefei Metalforming Intelligent Manufacturing revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

It is also worth noting that we have found 1 warning sign for Hefei Metalforming Intelligent Manufacturing that you need to take into consideration.

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

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