Shandong High Speed Renewable Energy Group Limited (SZSE:000803) Surges 29% Yet Its Low P/S Is No Reason For Excitement

Shandong High Speed Renewable Energy Group Limited (SZSE:000803) shares have continued their recent momentum with a 29% gain in the last month alone. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Although its price has surged higher, Shandong High Speed Renewable Energy Group's price-to-sales (or "P/S") ratio of 1.8x might still make it look like a buy right now compared to the Machinery industry in China, where around half of the companies have P/S ratios above 3.5x and even P/S above 6x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Shandong High Speed Renewable Energy Group

How Has Shandong High Speed Renewable Energy Group Performed Recently?

Shandong High Speed Renewable Energy Group could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. 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 Shandong High Speed Renewable Energy Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Shandong High Speed Renewable Energy Group's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Shandong High Speed Renewable Energy Group's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 26% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 176% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue growth is heading into negative territory, declining 0.8% over the next year. With the industry predicted to deliver 23% growth, that's a disappointing outcome.

With this information, we are not surprised that Shandong High Speed Renewable Energy Group is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Shandong High Speed Renewable Energy Group's P/S

Despite Shandong High Speed Renewable Energy Group's share price climbing recently, its P/S still lags most other companies. 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.

As we suspected, our examination of Shandong High Speed Renewable Energy Group's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Shandong High Speed Renewable Energy Group's poor outlook justifies its low P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Shandong High Speed Renewable Energy Group with six simple checks.

If you're unsure about the strength of Shandong High Speed Renewable Energy Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.