Revenues Tell The Story For Shenzhen Guangju Energy Co., Ltd. (SZSE:000096) As Its Stock Soars 29%

Shenzhen Guangju Energy Co., Ltd. (SZSE:000096) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 53%.

After such a large jump in price, you could be forgiven for thinking Shenzhen Guangju Energy is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 3.7x, considering almost half the companies in China's Oil and Gas industry have P/S ratios below 1.2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Shenzhen Guangju Energy

How Shenzhen Guangju Energy Has Been Performing

For instance, Shenzhen Guangju Energy's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

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 Shenzhen Guangju Energy's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Shenzhen Guangju Energy?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Shenzhen Guangju Energy's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 9.8% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 51% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the industry, which is expected to grow by 6.0% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in consideration, it's not hard to understand why Shenzhen Guangju Energy's P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Key Takeaway

Shares in Shenzhen Guangju Energy have seen a strong upwards swing lately, which has really helped boost its P/S figure. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

It's no surprise that Shenzhen Guangju Energy can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Plus, you should also learn about this 1 warning sign we've spotted with Shenzhen Guangju Energy.

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.