Farasis Energy (Gan Zhou) Co., Ltd.'s (SHSE:688567) Price Is Right But Growth Is Lacking After Shares Rocket 37%

Farasis Energy (Gan Zhou) Co., Ltd. (SHSE:688567) shareholders have had their patience rewarded with a 37% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 37% in the last twelve months.

In spite of the firm bounce in price, when close to half the companies operating in China's Electrical industry have price-to-sales ratios (or "P/S") above 2.1x, you may still consider Farasis Energy (Gan Zhou) as an enticing stock to check out with its 0.9x P/S ratio. 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 Farasis Energy (Gan Zhou)

How Has Farasis Energy (Gan Zhou) Performed Recently?

Farasis Energy (Gan Zhou) certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Farasis Energy (Gan Zhou) will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Farasis Energy (Gan Zhou)?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Farasis Energy (Gan Zhou)'s to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 23% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 12% over the next year. With the industry predicted to deliver 23% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Farasis Energy (Gan Zhou) is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Farasis Energy (Gan Zhou)'s P/S?

The latest share price surge wasn't enough to lift Farasis Energy (Gan Zhou)'s P/S close to the industry median. 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.

We've established that Farasis Energy (Gan Zhou) maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. 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.

Plus, you should also learn about this 1 warning sign we've spotted with Farasis Energy (Gan Zhou).

If you're unsure about the strength of Farasis Energy (Gan Zhou)'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.