What Tianjin Binhai Energy & Development Co.,Ltd's (SZSE:000695) 26% Share Price Gain Is Not Telling You

Tianjin Binhai Energy & Development Co.,Ltd (SZSE:000695) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 2.8% isn't as attractive.

Following the firm bounce in price, when almost half of the companies in China's Commercial Services industry have price-to-sales ratios (or "P/S") below 3x, you may consider Tianjin Binhai Energy & DevelopmentLtd as a stock probably not worth researching with its 4.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

See our latest analysis for Tianjin Binhai Energy & DevelopmentLtd

How Has Tianjin Binhai Energy & DevelopmentLtd Performed Recently?

With revenue growth that's exceedingly strong of late, Tianjin Binhai Energy & DevelopmentLtd has been doing very well. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Tianjin Binhai Energy & DevelopmentLtd?

Tianjin Binhai Energy & DevelopmentLtd's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered an exceptional 129% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 10% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 35% shows it's an unpleasant look.

In light of this, it's alarming that Tianjin Binhai Energy & DevelopmentLtd's P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Tianjin Binhai Energy & DevelopmentLtd's P/S?

Tianjin Binhai Energy & DevelopmentLtd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Tianjin Binhai Energy & DevelopmentLtd currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You always need to take note of risks, for example - Tianjin Binhai Energy & DevelopmentLtd has 2 warning signs we think you should be aware of.

If you're unsure about the strength of Tianjin Binhai Energy & DevelopmentLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.