Why Investors Shouldn't Be Surprised By Gresgying Digital Energy Technology Co.,Ltd's (SHSE:600212) P/S

When close to half the companies in the Renewable Energy industry in China have price-to-sales ratios (or "P/S") below 2x, you may consider Gresgying Digital Energy Technology Co.,Ltd (SHSE:600212) as a stock to avoid entirely with its 5.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for Gresgying Digital Energy TechnologyLtd

How Gresgying Digital Energy TechnologyLtd Has Been Performing

With revenue growth that's superior to most other companies of late, Gresgying Digital Energy TechnologyLtd has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For Gresgying Digital Energy TechnologyLtd?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Gresgying Digital Energy TechnologyLtd's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 107% last year. Pleasingly, revenue has also lifted 178% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 112% during the coming year according to the one analyst following the company. With the industry only predicted to deliver 11%, the company is positioned for a stronger revenue result.

With this information, we can see why Gresgying Digital Energy TechnologyLtd is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Gresgying Digital Energy TechnologyLtd's P/S?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look into Gresgying Digital Energy TechnologyLtd shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Having said that, be aware Gresgying Digital Energy TechnologyLtd is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning.

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.

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