Dalian Thermal Power Co.,Ltd. (SHSE:600719) Stock Rockets 28% As Investors Are Less Pessimistic Than Expected

The Dalian Thermal Power Co.,Ltd. (SHSE:600719) share price has done very well over the last month, posting an excellent gain of 28%. Looking back a bit further, it's encouraging to see the stock is up 39% in the last year.

After such a large jump in price, Dalian Thermal PowerLtd may be sending sell signals at present with a price-to-sales (or "P/S") ratio of 5.5x, when you consider almost half of the companies in the Integrated Utilities industry in China have P/S ratios under 3.6x and even P/S lower than 1.3x 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 as high as it is.

Check out our latest analysis for Dalian Thermal PowerLtd

How Dalian Thermal PowerLtd Has Been Performing

As an illustration, revenue has deteriorated at Dalian Thermal PowerLtd over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Dalian Thermal PowerLtd's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Dalian Thermal PowerLtd?

Dalian Thermal PowerLtd's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 18%. As a result, revenue from three years ago have also fallen 3.7% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 7.5% shows it's an unpleasant look.

With this information, we find it concerning that Dalian Thermal PowerLtd is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On Dalian Thermal PowerLtd's P/S

The large bounce in Dalian Thermal PowerLtd's shares has lifted the company's P/S handsomely. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of Dalian Thermal PowerLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Before you take the next step, you should know about the 2 warning signs for Dalian Thermal PowerLtd that we have uncovered.

If you're unsure about the strength of Dalian Thermal PowerLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.