Zhejiang Youpon Integrated Ceiling Co.,Ltd.'s (SZSE:002718) 47% Share Price Surge Not Quite Adding Up

The Zhejiang Youpon Integrated Ceiling Co.,Ltd. (SZSE:002718) share price has done very well over the last month, posting an excellent gain of 47%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

Even after such a large jump in price, it's still not a stretch to say that Zhejiang Youpon Integrated CeilingLtd's price-to-sales (or "P/S") ratio of 2x right now seems quite "middle-of-the-road" compared to the Consumer Durables industry in China, where the median P/S ratio is around 1.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Zhejiang Youpon Integrated CeilingLtd

What Does Zhejiang Youpon Integrated CeilingLtd's Recent Performance Look Like?

For instance, Zhejiang Youpon Integrated CeilingLtd'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 not, then existing shareholders may be a little nervous about the viability 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 Zhejiang Youpon Integrated CeilingLtd's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like Zhejiang Youpon Integrated CeilingLtd's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 9.1% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 7.0% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 9.3% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's somewhat alarming that Zhejiang Youpon Integrated CeilingLtd's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What Does Zhejiang Youpon Integrated CeilingLtd's P/S Mean For Investors?

Its shares have lifted substantially and now Zhejiang Youpon Integrated CeilingLtd's P/S is back within range of the industry median. 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.

Our look at Zhejiang Youpon Integrated CeilingLtd revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Zhejiang Youpon Integrated CeilingLtd you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.