China Everbright Greentech Limited (HKG:1257) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 9.2% isn't as attractive.

Although its price has surged higher, given about half the companies operating in Hong Kong's Renewable Energy industry have price-to-sales ratios (or "P/S") above 0.7x, you may still consider China Everbright Greentech as an attractive investment with its 0.2x 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 China Everbright Greentech Has Been Performing

Recent times haven't been great for China Everbright Greentech as its revenue has been falling quicker than most other companies. Perhaps the market isn't expecting future revenue performance to improve, which has kept the P/S suppressed. You'd much rather the company improve its revenue performance if you still believe in the business. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as low as China Everbright Greentech's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 7.1%. This means it has also seen a slide in revenue over the longer-term as revenue is down 28% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 5.1% as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 6.9%, which is not materially different.

With this in consideration, we find it intriguing that China Everbright Greentech's P/S is lagging behind its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

Despite China Everbright Greentech's share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It looks to us like the P/S figures for China Everbright Greentech remain low despite growth that is expected to be in line with other companies in the industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for China Everbright Greentech that 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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