Tsaker New Energy Tech Co., Limited (HKG:1986) Might Not Be As Mispriced As It Looks

There wouldn't be many who think Tsaker New Energy Tech Co., Limited's (HKG:1986) price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S for the Chemicals industry in Hong Kong is similar at about 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

See our latest analysis for Tsaker New Energy Tech

How Has Tsaker New Energy Tech Performed Recently?

The recent revenue growth at Tsaker New Energy Tech would have to be considered satisfactory if not spectacular. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. Those who are bullish on Tsaker New Energy Tech will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Tsaker New Energy Tech will help you shine a light on its historical performance.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Tsaker New Energy Tech would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 4.4%. The latest three year period has also seen a 21% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 4.5% shows it's noticeably more attractive.

With this information, we find it interesting that Tsaker New Energy Tech is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What We Can Learn From Tsaker New Energy Tech's P/S?

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.

We didn't quite envision Tsaker New Energy Tech's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Tsaker New Energy Tech (of which 1 is a bit unpleasant!) you should know about.

If you're unsure about the strength of Tsaker New Energy Tech's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.