What Yimikang Tech.Group Co., Ltd.'s (SZSE:300249) 32% Share Price Gain Is Not Telling You

Yimikang Tech.Group Co., Ltd. (SZSE:300249) shares have continued their recent momentum with a 32% gain in the last month alone. The annual gain comes to 261% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given around half the companies in China's Consumer Durables industry have price-to-sales ratios (or "P/S") below 2.2x, you may consider Yimikang Tech.Group as a stock to avoid entirely with its 8.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Yimikang Tech.Group

What Does Yimikang Tech.Group's P/S Mean For Shareholders?

Recent times have been quite advantageous for Yimikang Tech.Group as its revenue has been rising very briskly. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Yimikang Tech.Group will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Yimikang Tech.Group?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Yimikang Tech.Group's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 36%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 32% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 11% 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 alarming that Yimikang Tech.Group's P/S sits above 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 heavily on the share price eventually.

The Bottom Line On Yimikang Tech.Group's P/S

Yimikang Tech.Group's P/S has grown nicely over the last month thanks to a handy boost in the share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Yimikang Tech.Group currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Yimikang Tech.Group that you should be aware of.

If you're unsure about the strength of Yimikang Tech.Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.