Henan Yuneng Holdings Co.,Ltd. (SZSE:001896) shareholders would be excited to see that the share price has had a great month, posting a 35% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 3.9% isn't as attractive.

In spite of the firm bounce in price, Henan Yuneng HoldingsLtd may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.6x, considering almost half of all companies in the Electric Utilities industry in China have P/S ratios greater than 1.2x and even P/S higher than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Henan Yuneng HoldingsLtd's Recent Performance Look Like?

For instance, Henan Yuneng HoldingsLtd's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Henan Yuneng HoldingsLtd will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Is There Any Revenue Growth Forecasted For Henan Yuneng HoldingsLtd?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Henan Yuneng HoldingsLtd's to be considered reasonable.

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 19%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 29% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Comparing that to the industry, which is only predicted to deliver 2.3% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's peculiar that Henan Yuneng HoldingsLtd's P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Henan Yuneng HoldingsLtd's P/S

The latest share price surge wasn't enough to lift Henan Yuneng HoldingsLtd's P/S close to the industry median. 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 Henan Yuneng HoldingsLtd revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. 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. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Henan Yuneng HoldingsLtd (1 is a bit unpleasant) you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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