The Market Lifts Willing New Energy Co., Ltd. (SZSE:002667) Shares 28% But It Can Do More

Those holding Willing New Energy Co., Ltd. (SZSE:002667) shares would be relieved that the share price has rebounded 28% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 51% share price drop in the last twelve months.

In spite of the firm bounce in price, considering around half the companies operating in China's Machinery industry have price-to-sales ratios (or "P/S") above 2.3x, you may still consider Willing New Energy as an solid investment opportunity with its 1.6x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Willing New Energy

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

For instance, Willing New Energy's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Although there are no analyst estimates available for Willing New Energy, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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 a frustrating 31% decrease to the company's top line. Still, the latest three year period has seen an excellent 197% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 22% 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. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

Willing New Energy's stock price has surged recently, but its but its P/S still remains modest. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a 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. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. 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.

Before you take the next step, you should know about the 3 warning signs for Willing New Energy that we have uncovered.

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.