Investors Aren't Entirely Convinced By Tongyi Carbon Neutral Technology (Xinjiang) Co., Ltd's (SHSE:600506) Revenues

You may think that with a price-to-sales (or "P/S") ratio of 1x Tongyi Carbon Neutral Technology (Xinjiang) Co., Ltd (SHSE:600506) is a stock worth checking out, seeing as almost half of all the Food companies in China have P/S ratios greater than 1.7x and even P/S higher than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Tongyi Carbon Neutral Technology (Xinjiang)

How Has Tongyi Carbon Neutral Technology (Xinjiang) Performed Recently?

The revenue growth achieved at Tongyi Carbon Neutral Technology (Xinjiang) over the last year would be more than acceptable for most companies. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Although there are no analyst estimates available for Tongyi Carbon Neutral Technology (Xinjiang), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Tongyi Carbon Neutral Technology (Xinjiang)'s Revenue Growth Trending?

In order to justify its P/S ratio, Tongyi Carbon Neutral Technology (Xinjiang) would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 15% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, even though the last 12 months were fairly tame in comparison. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 16% shows it's noticeably more attractive.

With this information, we find it odd that Tongyi Carbon Neutral Technology (Xinjiang) is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Tongyi Carbon Neutral Technology (Xinjiang)'s P/S?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Tongyi Carbon Neutral Technology (Xinjiang) 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. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Tongyi Carbon Neutral Technology (Xinjiang).

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.