Maanshan Iron & Steel Company Limited (HKG:323) Looks Inexpensive But Perhaps Not Attractive Enough

Maanshan Iron & Steel Company Limited's (HKG:323) price-to-sales (or "P/S") ratio of 0.2x might make it look like a buy right now compared to the Metals and Mining industry in Hong Kong, where around half of the companies have P/S ratios above 0.9x and even P/S above 3x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Maanshan Iron & Steel

How Maanshan Iron & Steel Has Been Performing

While the industry has experienced revenue growth lately, Maanshan Iron & Steel's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still 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.

Keen to find out how analysts think Maanshan Iron & Steel's future stacks up against the industry? In that case, our free report is a great place to start.

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

The only time you'd be truly comfortable seeing a P/S as low as Maanshan Iron & Steel's is when the company's growth is on track to lag the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 10%. This means it has also seen a slide in revenue over the longer-term as revenue is down 27% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 3.6% during the coming year according to the six analysts following the company. With the industry predicted to deliver 21% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Maanshan Iron & Steel is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Maanshan Iron & Steel's P/S?

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.

As we suspected, our examination of Maanshan Iron & Steel's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Maanshan Iron & Steel with six simple checks will allow you to discover any risks that could be an issue.

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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.