There's No Escaping Jointo Energy Investment Co., Ltd. Hebei's (SZSE:000600) Muted Revenues

With a price-to-sales (or "P/S") ratio of 0.5x Jointo Energy Investment Co., Ltd. Hebei (SZSE:000600) may be sending bullish signals at the moment, given that almost half of all the Renewable Energy companies in China have P/S ratios greater than 2.3x and even P/S higher than 5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Jointo Energy Investment Hebei

What Does Jointo Energy Investment Hebei's Recent Performance Look Like?

Recent times have been advantageous for Jointo Energy Investment Hebei as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jointo Energy Investment Hebei.

Is There Any Revenue Growth Forecasted For Jointo Energy Investment Hebei?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. Revenue has also lifted 27% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the three analysts covering the company suggest revenue growth is heading into negative territory, declining 0.9% over the next year. With the industry predicted to deliver 11% growth, that's a disappointing outcome.

With this information, we are not surprised that Jointo Energy Investment Hebei is trading at a P/S lower than the industry. 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.

The Final Word

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.

As we suspected, our examination of Jointo Energy Investment Hebei's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Jointo Energy Investment Hebei'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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Jointo Energy Investment Hebei you should be aware of, and 1 of them doesn't sit too well with us.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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