When you see that almost half of the companies in the Electric Utilities industry in China have price-to-sales ratios (or "P/S") above 1.4x, Henan Yuneng Holdings Co.,Ltd. (SZSE:001896) looks to be giving off some buy signals with its 0.5x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Henan Yuneng HoldingsLtd Has Been Performing

We'd have to say that with no tangible growth over the last year, Henan Yuneng HoldingsLtd's revenue has been unimpressive. Perhaps the market believes the recent lacklustre revenue performance is a sign of future underperformance relative to industry peers, hurting the P/S. 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?

Henan Yuneng HoldingsLtd'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.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Still, the latest three year period was better as it's delivered a decent 24% overall rise in revenue. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 7.5% shows it's about the same on an annualised basis.

With this in consideration, we find it intriguing that Henan Yuneng HoldingsLtd's P/S falls short of its industry peers. It may be that most investors are not convinced the company can maintain recent growth rates.

The Final Word

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.

The fact that Henan Yuneng HoldingsLtd currently trades at a low P/S relative to the industry is unexpected considering its recent three-year growth is in line with the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

You always need to take note of risks, for example - Henan Yuneng HoldingsLtd has 1 warning sign we think you should be aware 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).

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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.

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