There's Reason For Concern Over Shenyang Yuanda Intellectual Industry Group Co.,Ltd's (SZSE:002689) Massive 29% Price Jump

Despite an already strong run, Shenyang Yuanda Intellectual Industry Group Co.,Ltd (SZSE:002689) shares have been powering on, with a gain of 29% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 13% in the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Shenyang Yuanda Intellectual Industry GroupLtd's price-to-sales (or "P/S") ratio of 3.6x is worth a mention when the median P/S in China's Machinery industry is similar at about 3.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Shenyang Yuanda Intellectual Industry GroupLtd

What Does Shenyang Yuanda Intellectual Industry GroupLtd's P/S Mean For Shareholders?

For instance, Shenyang Yuanda Intellectual Industry GroupLtd's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Shenyang Yuanda Intellectual Industry GroupLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Shenyang Yuanda Intellectual Industry GroupLtd's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 13%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 25% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 25% shows it's noticeably less attractive.

In light of this, it's curious that Shenyang Yuanda Intellectual Industry GroupLtd's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What Does Shenyang Yuanda Intellectual Industry GroupLtd's P/S Mean For Investors?

Its shares have lifted substantially and now Shenyang Yuanda Intellectual Industry GroupLtd's P/S is back within range of the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Shenyang Yuanda Intellectual Industry GroupLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Shenyang Yuanda Intellectual Industry GroupLtd with six simple checks on some of these key factors.

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.