When you see that almost half of the companies in the Renewable Energy industry in Hong Kong have price-to-sales ratios (or "P/S") above 0.8x, Datang International Power Generation Co., Ltd. (HKG:991) looks to be giving off some buy signals with its 0.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Datang International Power Generation

What Does Datang International Power Generation's P/S Mean For Shareholders?

The recent revenue growth at Datang International Power Generation would have to be considered satisfactory if not spectacular. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. Those who are bullish on Datang International Power Generation 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 Datang International Power Generation will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Datang International Power Generation?

Datang International Power Generation's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a decent 2.6% gain to the company's revenues. The latest three year period has also seen a 20% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

It's interesting to note that the rest of the industry is similarly expected to grow by 6.8% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Datang International Power Generation's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can maintain recent growth rates.

The Key Takeaway

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Datang International Power Generation revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's performance. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Datang International Power Generation you should be aware of.

If you're unsure about the strength of Datang International Power Generation's 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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