With A 30% Price Drop For Gresgying Digital Energy Technology Co.,Ltd (SHSE:600212) You'll Still Get What You Pay For

Gresgying Digital Energy Technology Co.,Ltd (SHSE:600212) shares have retraced a considerable 30% in the last month, reversing a fair amount of their solid recent performance. Longer-term shareholders would now have taken a real hit with the stock declining 6.0% in the last year.

In spite of the heavy fall 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 still consider Gresgying Digital Energy TechnologyLtd as a stock to avoid entirely with its 6.2x 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.

View 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 the market expects this form will continue into the future, hence the elevated P/S ratio. 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?

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.

Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. The latest three year period has also seen an excellent 210% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 127% during the coming year according to the dual analysts following the company. With the industry only predicted to deliver 7.6%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Gresgying Digital Energy TechnologyLtd's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Gresgying Digital Energy TechnologyLtd's P/S

Even after such a strong price drop, Gresgying Digital Energy TechnologyLtd's P/S still exceeds the industry median significantly. 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.

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 these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Gresgying Digital Energy TechnologyLtd that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.