Zhejiang Zheneng Electric Power Co., Ltd. (SHSE:600023) Looks Inexpensive But Perhaps Not Attractive Enough

You may think that with a price-to-sales (or "P/S") ratio of 0.9x Zhejiang Zheneng Electric Power Co., Ltd. (SHSE:600023) is a stock worth checking out, seeing as almost half of all the Renewable Energy companies in China have P/S ratios greater than 2x and even P/S higher than 5x 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 limited.

View our latest analysis for Zhejiang Zheneng Electric Power

What Does Zhejiang Zheneng Electric Power's P/S Mean For Shareholders?

Recent revenue growth for Zhejiang Zheneng Electric Power has been in line with the industry. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. Those who are bullish on Zhejiang Zheneng Electric Power will be hoping that this isn't the case.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Zhejiang Zheneng Electric Power.

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 low as Zhejiang Zheneng Electric Power's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 9.8%. This was backed up an excellent period prior to see revenue up by 60% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 1.2% over the next year. Meanwhile, the rest of the industry is forecast to expand by 9.9%, which is noticeably more attractive.

In light of this, it's understandable that Zhejiang Zheneng Electric Power's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Zhejiang Zheneng Electric Power's P/S

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.

As we suspected, our examination of Zhejiang Zheneng Electric Power's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Zhejiang Zheneng Electric Power that 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).

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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.