Suzhou Hycan Holdings Co., Ltd. (SZSE:002787) Surges 33% Yet Its Low P/S Is No Reason For Excitement

Simply Wall St · 10/17 22:27

The Suzhou Hycan Holdings Co., Ltd. (SZSE:002787) share price has done very well over the last month, posting an excellent gain of 33%. 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' price-to-sales (or "P/S") ratio of 1.1x might still make it look like a buy right now compared to the Packaging industry in China, where around half of the companies have P/S ratios above 1.7x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Suzhou Hycan Holdings

ps-multiple-vs-industry
SZSE:002787 Price to Sales Ratio vs Industry October 17th 2024

How Has Suzhou Hycan Holdings Performed Recently?

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. Those who are bullish on Suzhou Hycan Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Suzhou Hycan Holdings will help you shine a light on its historical performance.

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

Suzhou Hycan Holdings' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 7.6%. 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.

This is in contrast to the rest of the industry, which is expected to grow by 17% over the next year, materially higher than the company's recent medium-term annualised growth rates.

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 Final Word

Suzhou Hycan Holdings' stock price has surged recently, but its but its P/S still remains modest. 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

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 concerning.

If you're unsure about the strength of Suzhou Hycan Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.