Guangzhou Great Power Energy and Technology Co., Ltd (SZSE:300438) shareholders would be excited to see that the share price has had a great month, posting a 50% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 24% over that time.

In spite of the firm bounce in price, it's still not a stretch to say that Guangzhou Great Power Energy and Technology's price-to-sales (or "P/S") ratio of 2.2x right now seems quite "middle-of-the-road" compared to the Electrical industry in China, where the median P/S ratio is around 1.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Guangzhou Great Power Energy and Technology Has Been Performing

While the industry has experienced revenue growth lately, Guangzhou Great Power Energy and Technology's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

Is There Some Revenue Growth Forecasted For Guangzhou Great Power Energy and Technology?

Guangzhou Great Power Energy and Technology's 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, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 32%. Even so, admirably revenue has lifted 32% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 30% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 24%, which is noticeably less attractive.

In light of this, it's curious that Guangzhou Great Power Energy and Technology'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 We Can Learn From Guangzhou Great Power Energy and Technology's P/S?

Its shares have lifted substantially and now Guangzhou Great Power Energy and Technology's P/S is back within range of the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Despite enticing revenue growth figures that outpace the industry, Guangzhou Great Power Energy and Technology's P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Having said that, be aware Guangzhou Great Power Energy and Technology is showing 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

If you're unsure about the strength of Guangzhou Great Power Energy and Technology'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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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.