Qingdao Tianneng Heavy Industries Co.,Ltd's (SZSE:300569) Share Price Is Matching Sentiment Around Its Revenues

Qingdao Tianneng Heavy Industries Co.,Ltd's (SZSE:300569) price-to-sales (or "P/S") ratio of 1.6x might make it look like a buy right now compared to the Electrical 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. 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 Qingdao Tianneng Heavy IndustriesLtd

What Does Qingdao Tianneng Heavy IndustriesLtd's P/S Mean For Shareholders?

For instance, Qingdao Tianneng Heavy IndustriesLtd's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

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

How Is Qingdao Tianneng Heavy IndustriesLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Qingdao Tianneng Heavy IndustriesLtd'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 18%. As a result, revenue from three years ago have also fallen 6.8% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 27% shows it's an unpleasant look.

With this in mind, we understand why Qingdao Tianneng Heavy IndustriesLtd's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Qingdao Tianneng Heavy IndustriesLtd'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.

It's no surprise that Qingdao Tianneng Heavy IndustriesLtd maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you take the next step, you should know about the 5 warning signs for Qingdao Tianneng Heavy IndustriesLtd (3 make us uncomfortable!) that we have uncovered.

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.