There's No Escaping LONGi Green Energy Technology Co., Ltd.'s (SHSE:601012) Muted Revenues Despite A 27% Share Price Rise

The LONGi Green Energy Technology Co., Ltd. (SHSE:601012) share price has done very well over the last month, posting an excellent gain of 27%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 36% in the last twelve months.

Even after such a large jump in price, LONGi Green Energy Technology may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.3x, considering almost half of all companies in the Semiconductor industry in China have P/S ratios greater than 5.4x and even P/S higher than 10x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for LONGi Green Energy Technology

What Does LONGi Green Energy Technology's P/S Mean For Shareholders?

LONGi Green Energy Technology could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still 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.

Keen to find out how analysts think LONGi Green Energy Technology's future stacks up against the industry? In that case, our free report is a great place to start.

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

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 28% decrease to the company's top line. Even so, admirably revenue has lifted 49% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 7.7% each year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 39% each year growth forecast for the broader industry.

With this in consideration, its clear as to why LONGi Green Energy Technology's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From LONGi Green Energy Technology's P/S?

LONGi Green Energy Technology's recent share price jump still sees fails to bring its P/S alongside the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that LONGi Green Energy Technology maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for LONGi Green Energy Technology that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.