Tongyi Carbon Neutral Technology (Xinjiang) Co., Ltd (SHSE:600506) Stock Rockets 35% But Many Are Still Ignoring The Company

Despite an already strong run, Tongyi Carbon Neutral Technology (Xinjiang) Co., Ltd (SHSE:600506) shares have been powering on, with a gain of 35% in the last thirty days. Looking further back, the 15% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, there still wouldn't be many who think Tongyi Carbon Neutral Technology (Xinjiang)'s price-to-sales (or "P/S") ratio of 1.4x is worth a mention when the median P/S in China's Food industry is similar at about 1.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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

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

Revenue has risen at a steady rate over the last year for Tongyi Carbon Neutral Technology (Xinjiang), which is generally not a bad outcome. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. Those who are bullish on Tongyi Carbon Neutral Technology (Xinjiang) will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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.

What Are Revenue Growth Metrics Telling Us About The P/S?

Tongyi Carbon Neutral Technology (Xinjiang)'s P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a decent 6.8% gain to the company's revenues. While this performance is only fair, the company was still able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 16%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's curious that Tongyi Carbon Neutral Technology (Xinjiang)'s P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

Tongyi Carbon Neutral Technology (Xinjiang) appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

We've established that Tongyi Carbon Neutral Technology (Xinjiang) currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Tongyi Carbon Neutral Technology (Xinjiang) you should be aware of, and 1 of them is a bit concerning.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.