Jintai Energy Holdings Limited's (HKG:2728) Prospects Need A Boost To Lift Shares

When you see that almost half of the companies in the Oil and Gas industry in Hong Kong have price-to-sales ratios (or "P/S") above 0.6x, Jintai Energy Holdings Limited (HKG:2728) looks to be giving off some buy signals with its 0.1x 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.

Check out our latest analysis for Jintai Energy Holdings

How Has Jintai Energy Holdings Performed Recently?

With revenue growth that's exceedingly strong of late, Jintai Energy Holdings has been doing very well. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. 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.

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

How Is Jintai Energy Holdings' Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Jintai Energy Holdings' to be considered reasonable.

Retrospectively, the last year delivered an explosive gain to the company's top line. Still, revenue has fallen 93% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 1.7% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Jintai Energy Holdings is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Jintai Energy Holdings' P/S Mean For Investors?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Jintai Energy Holdings revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Jintai Energy Holdings that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.