Tianjin Tianbao Energy Co., Ltd. (HKG:1671) shares have continued their recent momentum with a 29% gain in the last month alone. Looking further back, the 13% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.
Although its price has surged higher, Tianjin Tianbao Energy may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.1x, since almost half of all companies in the Electric Utilities industry in Hong Kong have P/S ratios greater than 2.8x and even P/S higher than 18x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
View our latest analysis for Tianjin Tianbao Energy
How Has Tianjin Tianbao Energy Performed Recently?
Tianjin Tianbao Energy has been doing a decent job lately as it's been growing revenue at a reasonable pace. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. 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 Tianjin Tianbao Energy, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.Is There Any Revenue Growth Forecasted For Tianjin Tianbao Energy?
There's an inherent assumption that a company should far underperform the industry for P/S ratios like Tianjin Tianbao Energy's to be considered reasonable.
Taking a look back first, we see that the company managed to grow revenues by a handy 5.0% last year. Pleasingly, revenue has also lifted 33% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.
This is in contrast to the rest of the industry, which is expected to grow by 4.0% over the next year, materially lower than the company's recent medium-term annualised growth rates.
With this in mind, we find it intriguing that Tianjin Tianbao Energy's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.
What Does Tianjin Tianbao Energy's P/S Mean For Investors?
Even after such a strong price move, Tianjin Tianbao Energy's P/S still trails the rest of 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.
We're very surprised to see Tianjin Tianbao Energy currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.
Plus, you should also learn about these 3 warning signs we've spotted with Tianjin Tianbao Energy (including 2 which don't sit too well with us).
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.