China Smarter Energy Group Holdings Limited's (HKG:1004) Shares Climb 28% But Its Business Is Yet to Catch Up

Those holding China Smarter Energy Group Holdings Limited (HKG:1004) shares would be relieved that the share price has rebounded 28% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about China Smarter Energy Group Holdings' P/S ratio of 1.1x, since the median price-to-sales (or "P/S") ratio for the Renewable Energy industry in Hong Kong is also close to 0.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for China Smarter Energy Group Holdings

What Does China Smarter Energy Group Holdings' P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at China Smarter Energy Group Holdings over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For China Smarter Energy Group Holdings?

In order to justify its P/S ratio, China Smarter Energy Group Holdings would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 8.8% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 85% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 6.3% shows it's an unpleasant look.

In light of this, it's somewhat alarming that China Smarter Energy Group Holdings' P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What We Can Learn From China Smarter Energy Group Holdings' P/S?

China Smarter Energy Group Holdings appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Our look at China Smarter Energy Group Holdings revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 3 warning signs for China Smarter Energy Group Holdings you should be aware of, and 2 of them are significant.

If these risks are making you reconsider your opinion on China Smarter Energy Group Holdings, 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.