Investors Still Aren't Entirely Convinced By Shuangliang Eco-Energy Systems Co.,Ltd's (SHSE:600481) Revenues Despite 39% Price Jump

Shuangliang Eco-Energy Systems Co.,Ltd (SHSE:600481) shares have had a really impressive month, gaining 39% after a shaky period beforehand. But the last month did very little to improve the 51% share price decline over the last year.

Even after such a large jump in price, Shuangliang Eco-Energy SystemsLtd may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.5x, considering almost half of all companies in the Machinery industry in China have P/S ratios greater than 2.8x and even P/S higher than 5x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for Shuangliang Eco-Energy SystemsLtd

How Shuangliang Eco-Energy SystemsLtd Has Been Performing

Shuangliang Eco-Energy SystemsLtd hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Shuangliang Eco-Energy SystemsLtd will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

Shuangliang Eco-Energy SystemsLtd's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than 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 19%. In spite of this, the company still managed to deliver immense revenue growth over the last three years. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 31% over the next year. That's shaping up to be materially higher than the 23% growth forecast for the broader industry.

In light of this, it's peculiar that Shuangliang Eco-Energy SystemsLtd's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

Shares in Shuangliang Eco-Energy SystemsLtd have risen appreciably however, its P/S is still subdued. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

A look at Shuangliang Eco-Energy SystemsLtd's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for Shuangliang Eco-Energy SystemsLtd that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.