What Tibet Tianlu Co., Ltd.'s (SHSE:600326) 47% Share Price Gain Is Not Telling You

Tibet Tianlu Co., Ltd. (SHSE:600326) shareholders have had their patience rewarded with a 47% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 7.5% isn't as attractive.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Tibet Tianlu's P/S ratio of 1.6x, since the median price-to-sales (or "P/S") ratio for the Construction industry in China is also close to 1.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Tibet Tianlu

What Does Tibet Tianlu's Recent Performance Look Like?

The recent revenue growth at Tibet Tianlu would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. Those who are bullish on Tibet Tianlu will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Tibet Tianlu's earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Tibet Tianlu's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a worthy increase of 4.8%. Still, lamentably revenue has fallen 47% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 15% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Tibet Tianlu'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 Tibet Tianlu's P/S

Tibet Tianlu's stock has a lot of momentum behind it lately, which has brought its P/S level with 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.

The fact that Tibet Tianlu currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set 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. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Tibet Tianlu (of which 1 doesn't sit too well with us!) you should know about.

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

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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.