You may think that with a price-to-sales (or "P/S") ratio of 0.7x Zhejiang Zheneng Electric Power Co., Ltd. (SHSE:600023) is a stock worth checking out, seeing as almost half of all the Renewable Energy companies in China have P/S ratios greater than 2.1x and even P/S higher than 5x 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.

See our latest analysis for Zhejiang Zheneng Electric Power

What Does Zhejiang Zheneng Electric Power's P/S Mean For Shareholders?

Recent times have been advantageous for Zhejiang Zheneng Electric Power as its revenues have been rising faster than most other companies. 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.

Is There Any Revenue Growth Forecasted For Zhejiang Zheneng Electric Power?

In order to justify its P/S ratio, Zhejiang Zheneng Electric Power would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 8.9% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 72% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 3.4% during the coming year according to the seven analysts following the company. Meanwhile, the broader industry is forecast to expand by 20%, which paints a poor picture.

With this in consideration, we find it intriguing that Zhejiang Zheneng Electric Power's P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What Does Zhejiang Zheneng Electric Power's P/S Mean For Investors?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Zhejiang Zheneng Electric Power's P/S is on the lower end of the spectrum. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Zhejiang Zheneng Electric Power with six simple checks.

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.