Investors Interested In Fujian Mindong Electric Power Limited Company's (SZSE:000993) Revenues

When close to half the companies in the Renewable Energy industry in China have price-to-sales ratios (or "P/S") below 2.1x, you may consider Fujian Mindong Electric Power Limited Company (SZSE:000993) as a stock to avoid entirely with its 6.7x 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.

Check out our latest analysis for Fujian Mindong Electric Power Limited

How Has Fujian Mindong Electric Power Limited Performed Recently?

As an illustration, revenue has deteriorated at Fujian Mindong Electric Power Limited over the last year, which is not ideal at all. 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. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 Fujian Mindong Electric Power Limited's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Fujian Mindong Electric Power Limited?

Fujian Mindong Electric Power Limited'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.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 59%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 55% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 9.7% shows it's noticeably more attractive.

With this in consideration, it's not hard to understand why Fujian Mindong Electric Power Limited'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.

What Does Fujian Mindong Electric Power Limited's P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Fujian Mindong Electric Power Limited revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Fujian Mindong Electric Power Limited (1 makes us a bit uncomfortable) you should be aware of.

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.