Some Shareholders Feeling Restless Over Shandong Xinneng Taishan Power Generation Co.,Ltd.'s (SZSE:000720) P/S Ratio

When you see that almost half of the companies in the Logistics industry in China have price-to-sales ratios (or "P/S") below 1.2x, Shandong Xinneng Taishan Power Generation Co.,Ltd. (SZSE:000720) looks to be giving off some sell signals with its 1.9x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Shandong Xinneng Taishan Power GenerationLtd

What Does Shandong Xinneng Taishan Power GenerationLtd's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Shandong Xinneng Taishan Power GenerationLtd over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. If not, then existing shareholders may be quite nervous about the viability 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 Shandong Xinneng Taishan Power GenerationLtd's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Shandong Xinneng Taishan Power GenerationLtd?

In order to justify its P/S ratio, Shandong Xinneng Taishan Power GenerationLtd would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a frustrating 48% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 14% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 16% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Shandong Xinneng Taishan Power GenerationLtd is trading at a P/S higher than the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Shandong Xinneng Taishan Power GenerationLtd's P/S Mean For Investors?

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 Shandong Xinneng Taishan Power GenerationLtd currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware Shandong Xinneng Taishan Power GenerationLtd is showing 2 warning signs in our investment analysis, you should know about.

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.