Lacklustre Performance Is Driving LONGi Green Energy Technology Co., Ltd.'s (SHSE:601012) Low P/S

LONGi Green Energy Technology Co., Ltd.'s (SHSE:601012) price-to-sales (or "P/S") ratio of 1.2x might make it look like a strong buy right now compared to the Semiconductor industry in China, where around half of the companies have P/S ratios above 6.8x and even P/S above 13x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for LONGi Green Energy Technology

What Does LONGi Green Energy Technology's Recent Performance Look Like?

While the industry has experienced revenue growth lately, LONGi Green Energy Technology's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on LONGi Green Energy Technology.

How Is LONGi Green Energy Technology's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as LONGi Green Energy Technology's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a frustrating 31% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 22% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Looking ahead now, revenue is anticipated to climb by 11% per annum during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 58% per year, which is noticeably more attractive.

With this information, we can see why LONGi Green Energy Technology is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of LONGi Green Energy Technology's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for LONGi Green Energy Technology that you should be aware of.

If you're unsure about the strength of LONGi Green Energy Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.