Yuk Wing Group Holdings Limited (HKG:1536) shareholders are no doubt pleased to see that the share price has bounced 47% in the last month, although it is still struggling to make up recently lost ground. Looking back a bit further, it's encouraging to see the stock is up 41% in the last year.
Although its price has surged higher, you could still be forgiven for feeling indifferent about Yuk Wing Group Holdings' P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Machinery industry in Hong Kong is also close to 0.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
View our latest analysis for Yuk Wing Group Holdings
What Does Yuk Wing Group Holdings' P/S Mean For Shareholders?
Recent times have been quite advantageous for Yuk Wing Group Holdings as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling 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 Yuk Wing Group Holdings' earnings, revenue and cash flow.Is There Some Revenue Growth Forecasted For Yuk Wing Group Holdings?
The only time you'd be comfortable seeing a P/S like Yuk Wing Group Holdings' is when the company's growth is tracking the industry closely.
Taking a look back first, we see that the company grew revenue by an impressive 37% last year. The latest three year period has also seen an excellent 42% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.
Comparing that to the industry, which is predicted to deliver 16% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.
In light of this, it's curious that Yuk Wing Group Holdings' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.
What Does Yuk Wing Group Holdings' P/S Mean For Investors?
Yuk Wing Group Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of 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.
We've established that Yuk Wing Group Holdings' average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.
You need to take note of risks, for example - Yuk Wing Group Holdings has 4 warning signs (and 3 which are a bit unpleasant) we think you should know about.
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.