Gresgying Digital Energy Technology Co.,Ltd's (SHSE:600212) P/S Is Still On The Mark Following 29% Share Price Bounce

Gresgying Digital Energy Technology Co.,Ltd (SHSE:600212) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 34% in the last year.

After such a large jump in price, given around half the companies in China's Renewable Energy industry have price-to-sales ratios (or "P/S") below 1.9x, you may consider Gresgying Digital Energy TechnologyLtd as a stock to avoid entirely with its 8.2x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Gresgying Digital Energy TechnologyLtd

How Has Gresgying Digital Energy TechnologyLtd Performed Recently?

Gresgying Digital Energy TechnologyLtd certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

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How Is Gresgying Digital Energy TechnologyLtd's Revenue Growth Trending?

Gresgying Digital Energy TechnologyLtd's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 20% last year. Pleasingly, revenue has also lifted 210% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 127% over the next year. That's shaping up to be materially higher than the 7.5% growth forecast for the broader industry.

With this information, we can see why Gresgying Digital Energy TechnologyLtd is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Shares in Gresgying Digital Energy TechnologyLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

We've established that Gresgying Digital Energy TechnologyLtd maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Renewable Energy industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Gresgying Digital Energy TechnologyLtd with six simple checks.

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.