Optimistic Investors Push TianYu Eco-Environment Co.,Ltd (SHSE:603717) Shares Up 40% But Growth Is Lacking

TianYu Eco-Environment Co.,Ltd (SHSE:603717) shares have continued their recent momentum with a 40% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 7.9% isn't as impressive.

Even after such a large jump in price, it's still not a stretch to say that TianYu Eco-EnvironmentLtd's price-to-sales (or "P/S") ratio of 3.1x right now seems quite "middle-of-the-road" compared to the Commercial Services industry in China, where the median P/S ratio is around 2.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for TianYu Eco-EnvironmentLtd

What Does TianYu Eco-EnvironmentLtd's P/S Mean For Shareholders?

For instance, TianYu Eco-EnvironmentLtd's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on TianYu Eco-EnvironmentLtd's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For TianYu Eco-EnvironmentLtd?

The only time you'd be comfortable seeing a P/S like TianYu Eco-EnvironmentLtd's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 31% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 9.3% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is predicted to deliver 30% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's curious that TianYu Eco-EnvironmentLtd's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

Its shares have lifted substantially and now TianYu Eco-EnvironmentLtd's P/S is back within range of the industry median. 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.

Our examination of TianYu Eco-EnvironmentLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

You always need to take note of risks, for example - TianYu Eco-EnvironmentLtd has 1 warning sign we think you should be aware of.

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.