China Youran Dairy Group Limited (HKG:9858) shareholders have had their patience rewarded with a 29% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 2.1% isn't as attractive.
Although its price has surged higher, it's still not a stretch to say that China Youran Dairy Group's price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Food industry in Hong Kong, where the median P/S ratio is around 0.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
See our latest analysis for China Youran Dairy Group
How China Youran Dairy Group Has Been Performing
China Youran Dairy Group certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. Perhaps the market is expecting its current strong performance to taper off in accordance to the rest of the industry, which has kept the P/S contained. 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 not quite in favour.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on China Youran Dairy Group.Do Revenue Forecasts Match The P/S Ratio?
In order to justify its P/S ratio, China Youran Dairy Group would need to produce growth that's similar to the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 6.8%. This was backed up an excellent period prior to see revenue up by 43% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.
Looking ahead now, revenue is anticipated to climb by 9.5% during the coming year according to the four analysts following the company. With the industry only predicted to deliver 6.7%, the company is positioned for a stronger revenue result.
With this information, we find it interesting that China Youran Dairy Group is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.
The Bottom Line On China Youran Dairy Group's P/S
China Youran Dairy Group appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.
Looking at China Youran Dairy Group's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with China Youran Dairy Group, and understanding them should be part of your investment process.
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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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.