China Youran Dairy Group Limited (HKG:9858) shares have continued their recent momentum with a 29% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 21% is also fairly reasonable.
Although its price has surged higher, you could still be forgiven for feeling indifferent about China Youran Dairy Group's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Food industry in Hong Kong is also close to 0.6x. 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. It might be that many expect the strong revenue performance to deteriorate like the rest, which has kept the P/S ratio from rising. 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.How Is China Youran Dairy Group's Revenue Growth Trending?
China Youran Dairy Group's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 6.8%. The latest three year period has also seen an excellent 43% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Turning to the outlook, the next year should generate growth of 9.2% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 6.0%, which is noticeably less attractive.
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 Final Word
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 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.
Despite enticing revenue growth figures that outpace the industry, China Youran Dairy Group's P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.
You always need to take note of risks, for example - China Youran Dairy Group has 2 warning signs we think you should be aware of.
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.