Investors Continue Waiting On Sidelines For Tianjin Tianbao Infrastructure Co., Ltd. (SZSE:000965)

With a price-to-sales (or "P/S") ratio of 1x Tianjin Tianbao Infrastructure Co., Ltd. (SZSE:000965) may be sending bullish signals at the moment, given that almost half of all the Real Estate companies in China have P/S ratios greater than 1.6x and even P/S higher than 4x are not unusual. 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 Tianjin Tianbao Infrastructure

What Does Tianjin Tianbao Infrastructure's P/S Mean For Shareholders?

Recent times have been quite advantageous for Tianjin Tianbao Infrastructure as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction 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 Tianjin Tianbao Infrastructure's earnings, revenue and cash flow.

How Is Tianjin Tianbao Infrastructure's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Tianjin Tianbao Infrastructure's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company grew revenue by an impressive 59% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 12% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Tianjin Tianbao Infrastructure 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.

The Final Word

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We're very surprised to see Tianjin Tianbao Infrastructure 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. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Having said that, be aware Tianjin Tianbao Infrastructure is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.