Market Might Still Lack Some Conviction On Longyan Zhuoyue New Energy Co., Ltd. (SHSE:688196) Even After 32% Share Price Boost

Simply Wall St · 10/18 22:23

Longyan Zhuoyue New Energy Co., Ltd. (SHSE:688196) shareholders would be excited to see that the share price has had a great month, posting a 32% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 43% in the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Longyan Zhuoyue New Energy's price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S in China's Oil and Gas industry is similar at about 1.3x. 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.

See our latest analysis for Longyan Zhuoyue New Energy

ps-multiple-vs-industry
SHSE:688196 Price to Sales Ratio vs Industry October 18th 2024

What Does Longyan Zhuoyue New Energy's Recent Performance Look Like?

Longyan Zhuoyue New Energy has been struggling lately as its revenue has declined faster than most other companies. Perhaps the market is expecting future revenue performance to begin matching the rest of the industry, which has kept the P/S from declining. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. 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 Longyan Zhuoyue New Energy will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The P/S?

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

Retrospectively, the last year delivered a frustrating 26% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 55% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 24% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 5.8%, which is noticeably less attractive.

In light of this, it's curious that Longyan Zhuoyue New Energy's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What Does Longyan Zhuoyue New Energy's P/S Mean For Investors?

Longyan Zhuoyue New Energy's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Looking at Longyan Zhuoyue New Energy's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Longyan Zhuoyue New Energy (2 are concerning!) that you need to be mindful of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).