Improved Revenues Required Before Shenyang Huitian Thermal Power Co.,Ltd (SZSE:000692) Shares Find Their Feet

You may think that with a price-to-sales (or "P/S") ratio of 0.9x Shenyang Huitian Thermal Power Co.,Ltd (SZSE:000692) is a stock worth checking out, seeing as almost half of all the Water Utilities companies in China have P/S ratios greater than 2.5x and even P/S higher than 5x 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 Shenyang Huitian Thermal PowerLtd

What Does Shenyang Huitian Thermal PowerLtd's P/S Mean For Shareholders?

Revenue has risen firmly for Shenyang Huitian Thermal PowerLtd recently, which is pleasing to see. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. Those who are bullish on Shenyang Huitian Thermal PowerLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Shenyang Huitian Thermal PowerLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Shenyang Huitian Thermal PowerLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 10%. Revenue has also lifted 8.5% 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.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 11% shows it's noticeably less attractive.

In light of this, it's understandable that Shenyang Huitian Thermal PowerLtd's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On Shenyang Huitian Thermal PowerLtd's P/S

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 Shenyang Huitian Thermal PowerLtd confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 3 warning signs we've spotted with Shenyang Huitian Thermal PowerLtd (including 2 which don't sit too well with us).

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.