CBAK Energy Technology, Inc. ( NASDAQ:CBAT ) shareholders won't be pleased to have had a tough month, with the share price falling 26%, wiping out the strong performance from the previous quarter, and longer term shareholders will be hit hard by the share price's decline of 7.3% over the last year.
CBAK Energy Technology's stock price has fallen significantly and is currently sending a buy signal with a price-to-sales (P/S) ratio of 0.4x. This is understandable given that nearly half of the companies in the US Electric industry have P/S ratios above 1.5x, and it's not uncommon for P/S to be above 4x. However, there may be a reason for the low P/S, and further investigation is needed to determine if it is justified.
Read our latest analysis on CBAK Energy Technology
NasdaqCM:CBAT Industry Price to Sales Ratio 08/11/2024
How has CBAK Energy Technology performed recently?
CBAK Energy Technology's earnings have been growing slower than most other companies and have not been doing well recently. Perhaps the market is expecting the current trend of slow earnings growth to continue, which is keeping the P/S ratio in check. If so, existing shareholders will have a hard time getting excited about the future direction of the share price.
If you want to see what analysts are predicting going forward, check out this free report on CBAK Energy Technology.
What do earnings growth metrics tell us about a low P/S?
There is essentially an assumption that for a P/S ratio like CBAK Energy Technology's to be considered reasonable, the company's performance must be below the industry average.
Looking back, the company's revenue grew 15% last year. While the trailing 12 months were decent, the last three years saw incredible overall revenue growth. So let's start by noting that the company has achieved significant revenue growth over this period.
Looking at the outlook, the only analyst who follows the company predicts 28% growth next year, compared to a much less attractive 14% growth for the industry as a whole.
Taking this into account, it's interesting to see that CBAK Energy Technology's P/S is lower than most of its peers, as most investors don't seem at all convinced the company can deliver on its future growth expectations.
Key Takeaways
CBAK Energy Technology's share price is on a downward trend, which means the company's P/S is currently at a fairly low level. While it would be unwise to use the price-to-sales ratio alone to determine whether or not to sell a stock, it can be a practical indicator of the company's future prospects.
CBAK Energy Technology's stock price appears to be significantly down at the moment, as the company's expected earnings growth is higher than its peers. The reason for this decline in the stock price could be due to risks that the market is pricing in. While the company's high expected earnings growth makes it unlikely that the stock price will fall too quickly, there does seem to be some hesitation in the market.
Don't forget that there could be other risks too – for example, we've identified 3 warning signs for CBAK Energy Technology you should be aware of.
Of course, profitable companies with proven track records of strong earnings growth are generally safe investments, so we think you might find it useful to take a look at this free collection of other companies with reasonable P/E ratios and strong earnings growth.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell a stock, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.
