There's No Escaping Shenyang Huitian Thermal Power Co.,Ltd's (SZSE:000692) Muted Revenues Despite A 35% Share Price Rise

The Shenyang Huitian Thermal Power Co.,Ltd (SZSE:000692) share price has done very well over the last month, posting an excellent gain of 35%. The last 30 days bring the annual gain to a very sharp 49%.

In spite of the firm bounce in price, given about half the companies operating in China's Water Utilities industry have price-to-sales ratios (or "P/S") above 2.4x, you may still consider Shenyang Huitian Thermal PowerLtd as an attractive investment with its 0.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Shenyang Huitian Thermal PowerLtd

What Does Shenyang Huitian Thermal PowerLtd's Recent Performance Look Like?

Shenyang Huitian Thermal PowerLtd has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. 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.

Is There Any Revenue Growth Forecasted For Shenyang Huitian Thermal PowerLtd?

The only time you'd be truly comfortable seeing a P/S as low as Shenyang Huitian Thermal PowerLtd's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a decent 8.1% gain to the company's revenues. Revenue has also lifted 8.3% 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 that to the industry, which is predicted to deliver 11% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why Shenyang Huitian Thermal PowerLtd is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

Shenyang Huitian Thermal PowerLtd's stock price has surged recently, but its but its P/S still remains modest. 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.

As we suspected, our examination of Shenyang Huitian Thermal PowerLtd revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

You need to take note of risks, for example - Shenyang Huitian Thermal PowerLtd has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

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.