China Resources Power Holdings Company Limited's (HKG:836) P/S Still Appears To Be Reasonable

There wouldn't be many who think China Resources Power Holdings Company Limited's (HKG:836) price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S for the Renewable Energy industry in Hong Kong is very similar. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for China Resources Power Holdings

What Does China Resources Power Holdings' Recent Performance Look Like?

Recent times haven't been great for China Resources Power Holdings as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on China Resources Power Holdings will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

China Resources Power Holdings' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.5% last year. Pleasingly, revenue has also lifted 58% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 5.4% each year during the coming three years according to the analysts following the company. That's shaping up to be similar to the 6.6% each year growth forecast for the broader industry.

With this in mind, it makes sense that China Resources Power Holdings' P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

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've seen that China Resources Power Holdings maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

We don't want to rain on the parade too much, but we did also find 2 warning signs for China Resources Power Holdings (1 makes us a bit uncomfortable!) that you need to be mindful of.

If you're unsure about the strength of China Resources Power Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.