Investors Appear Satisfied With Guangdong Meiyanjixiang Hydropower Co.,Ltd.'s (SHSE:600868) Prospects

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 Guangdong Meiyanjixiang Hydropower Co.,Ltd. (SHSE:600868) as a stock to avoid entirely with its 13x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Guangdong Meiyanjixiang HydropowerLtd

How Has Guangdong Meiyanjixiang HydropowerLtd Performed Recently?

For instance, Guangdong Meiyanjixiang HydropowerLtd's receding revenue in recent times would have to be some food for thought. 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Guangdong Meiyanjixiang HydropowerLtd's earnings, revenue and cash flow.

How Is Guangdong Meiyanjixiang HydropowerLtd's Revenue Growth Trending?

Guangdong Meiyanjixiang HydropowerLtd'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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 36%. Even so, admirably revenue has lifted 97% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 11% shows it's noticeably more attractive.

With this in consideration, it's not hard to understand why Guangdong Meiyanjixiang HydropowerLtd's P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Guangdong Meiyanjixiang HydropowerLtd's P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Guangdong Meiyanjixiang HydropowerLtd maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Guangdong Meiyanjixiang HydropowerLtd with six simple checks on some of these key factors.

If you're unsure about the strength of Guangdong Meiyanjixiang HydropowerLtd'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.