Zhangjiagang Haiguo New Energy Equipment Manufacturing Co., Ltd.'s (SZSE:301063) Shares Climb 29% But Its Business Is Yet to Catch Up

Zhangjiagang Haiguo New Energy Equipment Manufacturing Co., Ltd. (SZSE:301063) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 33% in the last year.

Even after such a large jump in price, there still wouldn't be many who think Zhangjiagang Haiguo New Energy Equipment Manufacturing's price-to-sales (or "P/S") ratio of 1.7x is worth a mention when the median P/S in China's Metals and Mining industry is similar at about 1.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Zhangjiagang Haiguo New Energy Equipment Manufacturing

How Zhangjiagang Haiguo New Energy Equipment Manufacturing Has Been Performing

We'd have to say that with no tangible growth over the last year, Zhangjiagang Haiguo New Energy Equipment Manufacturing's revenue has been unimpressive. It might be that many expect the uninspiring revenue performance to only match most other companies at best over the coming period, which has kept the P/S from rising. Those who are bullish on Zhangjiagang Haiguo New Energy Equipment Manufacturing 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 Zhangjiagang Haiguo New Energy Equipment Manufacturing will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Zhangjiagang Haiguo New Energy Equipment Manufacturing?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Zhangjiagang Haiguo New Energy Equipment Manufacturing's to be considered reasonable.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Although pleasingly revenue has lifted 30% in aggregate from three years ago, notwithstanding the last 12 months. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Comparing that to the industry, which is predicted to deliver 14% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Zhangjiagang Haiguo New Energy Equipment Manufacturing's P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Final Word

Its shares have lifted substantially and now Zhangjiagang Haiguo New Energy Equipment Manufacturing's P/S is back within range of the industry median. 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've established that Zhangjiagang Haiguo New Energy Equipment Manufacturing's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

Before you take the next step, you should know about the 4 warning signs for Zhangjiagang Haiguo New Energy Equipment Manufacturing (1 makes us a bit uncomfortable!) that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.