Sentiment Still Eluding Willing New Energy Co., Ltd. (SZSE:002667)

Willing New Energy Co., Ltd.'s (SZSE:002667) price-to-sales (or "P/S") ratio of 1.2x might 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 2.7x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Willing New Energy

What Does Willing New Energy's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Willing New Energy has been doing very well. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Willing New Energy will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Willing New Energy will help you shine a light on its historical performance.

How Is Willing New Energy's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Willing New Energy's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 139% gain to the company's top line. 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.

This is in contrast to the rest of the industry, which is expected to grow by 28% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Willing New Energy's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

What Does Willing New Energy's P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Willing New Energy revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Willing New Energy (at least 1 which is a bit unpleasant), and understanding these should be part of your investment process.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.