Even With A 31% Surge, Cautious Investors Are Not Rewarding Shanxi Guoxin Energy Corporation Limited's (SHSE:600617) Performance Completely

The Shanxi Guoxin Energy Corporation Limited (SHSE:600617) share price has done very well over the last month, posting an excellent gain of 31%. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Even after such a large jump in price, considering around half the companies operating in China's Oil and Gas industry have price-to-sales ratios (or "P/S") above 1.4x, you may still consider Shanxi Guoxin Energy as an solid investment opportunity with its 0.3x 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 limited.

See our latest analysis for Shanxi Guoxin Energy

How Has Shanxi Guoxin Energy Performed Recently?

Shanxi Guoxin Energy has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. Those who are bullish on Shanxi Guoxin Energy will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Shanxi Guoxin Energy's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.3% last year. Revenue has also lifted 29% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

When compared to the industry's one-year growth forecast of 6.5%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's peculiar that Shanxi Guoxin Energy's P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Shanxi Guoxin Energy's P/S

Shanxi Guoxin Energy's stock price has surged recently, but its but its P/S still remains modest. 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 Shanxi Guoxin 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. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Shanxi Guoxin Energy (1 can't be ignored) you should be aware of.

If you're unsure about the strength of Shanxi Guoxin Energy'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.