Investors Still Aren't Entirely Convinced By Tongyu Heavy Industry Co., Ltd.'s (SZSE:300185) Revenues Despite 26% Price Jump

Despite an already strong run, Tongyu Heavy Industry Co., Ltd. (SZSE:300185) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 29%.

Even after such a large jump in price, Tongyu Heavy Industry may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.2x, since almost half of all companies in the Machinery industry in China have P/S ratios greater than 3.2x and even P/S higher than 6x are not unusual. 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 Tongyu Heavy Industry

What Does Tongyu Heavy Industry's Recent Performance Look Like?

Tongyu Heavy Industry 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. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. 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 Tongyu Heavy Industry will help you uncover what's on the horizon.

How Is Tongyu Heavy Industry's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Tongyu Heavy Industry's is when the company's growth is on track to lag 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 4.0%. The last three years don't look nice either as the company has shrunk revenue by 4.4% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 35% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 25% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Tongyu Heavy Industry's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Tongyu Heavy Industry'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.

Tongyu Heavy Industry's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Tongyu Heavy Industry (2 shouldn't be ignored!) that you need to be mindful of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.