To the annoyance of some shareholders, Shenyang Huitian Thermal Power Co.,Ltd (SZSE:000692) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 27% share price drop.

Since its price has dipped substantially, Shenyang Huitian Thermal PowerLtd may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.6x, since almost half of all companies in the Water Utilities industry in China have P/S ratios greater than 2.4x and even P/S higher than 5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does Shenyang Huitian Thermal PowerLtd's Recent Performance Look Like?

For example, consider that Shenyang Huitian Thermal PowerLtd's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. 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 Shenyang Huitian Thermal PowerLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Shenyang Huitian Thermal PowerLtd'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 11%. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 12% shows it's noticeably less attractive.

With this in consideration, it's easy to understand why Shenyang Huitian Thermal PowerLtd's P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

The southerly movements of Shenyang Huitian Thermal PowerLtd's shares means its P/S is now sitting at a pretty low level. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Shenyang Huitian Thermal PowerLtd revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Shenyang Huitian Thermal PowerLtd you should be aware of.

If you're unsure about the strength of Shenyang Huitian Thermal PowerLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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