ZHEJIANG NARADA POWER SOURCE Co. , Ltd.'s (SZSE:300068) price-to-sales (or "P/S") ratio of 0.8x might make it look like a buy right now compared to the Electrical industry in China, where around half of the companies have P/S ratios above 2.6x and even P/S above 5x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for ZHEJIANG NARADA POWER SOURCE

What Does ZHEJIANG NARADA POWER SOURCE's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, ZHEJIANG NARADA POWER SOURCE has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

How Is ZHEJIANG NARADA POWER SOURCE's Revenue Growth Trending?

ZHEJIANG NARADA POWER SOURCE'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 the company grew revenue by an impressive 40% last year. The latest three year period has also seen an excellent 43% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 43% during the coming year according to the four analysts following the company. With the industry only predicted to deliver 31%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that ZHEJIANG NARADA POWER SOURCE's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From ZHEJIANG NARADA POWER SOURCE's P/S?

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.

ZHEJIANG NARADA POWER SOURCE's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware ZHEJIANG NARADA POWER SOURCE is showing 2 warning signs in our investment analysis, you should know about.

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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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.