Despite an already strong run, Tianjin Tianbao Energy Co., Ltd. (HKG:1671) shares have been powering on, with a gain of 31% in the last thirty days. The annual gain comes to 110% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, Tianjin Tianbao Energy may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.1x, since almost half of all companies in the Electric Utilities industry in Hong Kong have P/S ratios greater than 3x and even P/S higher than 19x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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View our latest analysis for Tianjin Tianbao Energy

What Does Tianjin Tianbao Energy's P/S Mean For Shareholders?

Revenue has risen at a steady rate over the last year for Tianjin Tianbao Energy, which is generally not a bad outcome. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Tianjin Tianbao Energy's earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as Tianjin Tianbao Energy's is when the company's growth is on track to lag the industry decidedly.

If we review the last year of revenue growth, the company posted a worthy increase of 5.0%. The latest three year period has also seen an excellent 33% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 3.9% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Tianjin Tianbao Energy is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Tianjin Tianbao Energy's P/S

Tianjin Tianbao Energy's recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

We're very surprised to see Tianjin Tianbao Energy currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Tianjin Tianbao Energy (2 are a bit concerning!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Tianjin Tianbao Energy, explore our interactive list of high quality stocks to get an idea of what else is out there.

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