Why Investors Shouldn't Be Surprised By Shenyang Huitian Thermal Power Co.,Ltd's (SZSE:000692) 34% Share Price Plunge

Shenyang Huitian Thermal Power Co.,Ltd (SZSE:000692) shareholders that were waiting for something to happen have been dealt a blow with a 34% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 30% in that time.

Following the heavy fall in price, when close to half the companies operating in China's Water Utilities industry have price-to-sales ratios (or "P/S") above 2.4x, you may consider Shenyang Huitian Thermal PowerLtd as an enticing stock to check out with its 0.6x P/S ratio. 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 Shenyang Huitian Thermal PowerLtd

How Shenyang Huitian Thermal PowerLtd Has Been Performing

For example, consider that Shenyang Huitian Thermal PowerLtd's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shenyang Huitian Thermal PowerLtd will help you shine a light on its historical performance.

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

In order to justify its P/S ratio, Shenyang Huitian Thermal PowerLtd would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 11%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 12% 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 Bottom Line On Shenyang Huitian Thermal PowerLtd's P/S

Shenyang Huitian Thermal PowerLtd's P/S has taken a dip along with its share price. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

In line with expectations, Shenyang Huitian Thermal PowerLtd maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

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

If these risks are making you reconsider your opinion on Shenyang Huitian Thermal PowerLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.