Tongyi Carbon Neutral Technology (Xinjiang) Co., Ltd (SHSE:600506) Stock's 26% Dive Might Signal An Opportunity But It Requires Some Scrutiny

Tongyi Carbon Neutral Technology (Xinjiang) Co., Ltd (SHSE:600506) shares have had a horrible month, losing 26% after a relatively good period beforehand. The recent drop has obliterated the annual return, with the share price now down 4.2% over that longer period.

Following the heavy fall in price, Tongyi Carbon Neutral Technology (Xinjiang) may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.9x, considering almost half of all companies in the Food industry in China have P/S ratios greater than 1.6x and even P/S higher than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Tongyi Carbon Neutral Technology (Xinjiang)

What Does Tongyi Carbon Neutral Technology (Xinjiang)'s P/S Mean For Shareholders?

The revenue growth achieved at Tongyi Carbon Neutral Technology (Xinjiang) over the last year would be more than acceptable for most companies. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of 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 Tongyi Carbon Neutral Technology (Xinjiang)'s earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Tongyi Carbon Neutral Technology (Xinjiang)'s is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. The latest three year period has seen an incredible overall rise in revenue, even though the last 12 month performance was only fair. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Comparing that to the industry, which is only predicted to deliver 15% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Tongyi Carbon Neutral Technology (Xinjiang)'s P/S isn't as high compared to that of its industry peers. 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?

Tongyi Carbon Neutral Technology (Xinjiang)'s P/S has taken a dip along with its share price. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We're very surprised to see Tongyi Carbon Neutral Technology (Xinjiang) currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. 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.

You always need to take note of risks, for example - Tongyi Carbon Neutral Technology (Xinjiang) has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Tongyi Carbon Neutral Technology (Xinjiang), explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.