The Hans Energy Company Limited (HKG:554) share price has done very well over the last month, posting an excellent gain of 35%. Notwithstanding the latest gain, the annual share price return of 6.7% isn't as impressive.

Even after such a large jump in price, there still wouldn't be many who think Hans Energy's price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S in Hong Kong's Oil and Gas industry is similar at about 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Hans Energy's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Hans Energy has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Hans Energy will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Is There Some Revenue Growth Forecasted For Hans Energy?

In order to justify its P/S ratio, Hans Energy would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 37% gain to the company's top line. However, this wasn't enough as the latest three year period has seen the company endure a nasty 62% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Comparing that to the industry, which is predicted to deliver 0.7% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's somewhat alarming that Hans Energy's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Bottom Line On Hans Energy's P/S

Hans Energy's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We find it unexpected that Hans Energy trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Hans Energy with six simple checks on some of these key factors.

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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