Improved Revenues Required Before TCL Zhonghuan Renewable Energy Technology Co.,Ltd. (SZSE:002129) Stock's 26% Jump Looks Justified

TCL Zhonghuan Renewable Energy Technology Co.,Ltd. (SZSE:002129) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 56% share price drop in the last twelve months.

Although its price has surged higher, TCL Zhonghuan Renewable Energy TechnologyLtd may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1x, 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. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for TCL Zhonghuan Renewable Energy TechnologyLtd

What Does TCL Zhonghuan Renewable Energy TechnologyLtd's Recent Performance Look Like?

TCL Zhonghuan Renewable Energy TechnologyLtd hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. 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.

Want the full picture on analyst estimates for the company? Then our free report on TCL Zhonghuan Renewable Energy TechnologyLtd will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For TCL Zhonghuan Renewable Energy TechnologyLtd?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 42%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 44% in total over the last three years. 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.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 22% each year over the next three years. That's shaping up to be materially lower than the 39% per annum growth forecast for the broader industry.

With this in consideration, its clear as to why TCL Zhonghuan Renewable Energy TechnologyLtd's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On TCL Zhonghuan Renewable Energy TechnologyLtd's P/S

TCL Zhonghuan Renewable Energy TechnologyLtd's recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

As we suspected, our examination of TCL Zhonghuan Renewable Energy TechnologyLtd's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for TCL Zhonghuan Renewable Energy TechnologyLtd (2 shouldn't be ignored) you should be aware of.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.