There's No Escaping Guangxi Energy Co., Ltd.'s (SHSE:600310) Muted Revenues Despite A 33% Share Price Rise

Guangxi Energy Co., Ltd. (SHSE:600310) shares have had a really impressive month, gaining 33% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 16% in the last twelve months.

Even after such a large jump in price, Guangxi Energy may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.5x, considering almost half of all companies in the Electric Utilities industry in China have P/S ratios greater than 2x and even P/S higher than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Guangxi Energy

What Does Guangxi Energy's Recent Performance Look Like?

With revenue that's retreating more than the industry's average of late, Guangxi Energy has been very sluggish. Perhaps the market isn't expecting future revenue performance to improve, which has kept the P/S suppressed. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Guangxi Energy's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Guangxi Energy would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 41% decrease to the company's top line. As a result, revenue from three years ago have also fallen 40% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 56% as estimated by the lone analyst watching the company. That's not great when the rest of the industry is expected to grow by 9.0%.

In light of this, it's understandable that Guangxi Energy's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What Does Guangxi Energy's P/S Mean For Investors?

The latest share price surge wasn't enough to lift Guangxi Energy's P/S close to the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It's clear to see that Guangxi Energy maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. As other companies in the industry are forecasting revenue growth, Guangxi Energy's poor outlook justifies its low P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Guangxi Energy is showing 2 warning signs in our investment analysis, you should know about.

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.