Yonghui Superstores Co., Ltd. (SHSE:601933) Stock Rockets 77% As Investors Are Less Pessimistic Than Expected

Yonghui Superstores Co., Ltd. (SHSE:601933) shares have continued their recent momentum with a 77% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 70% in the last year.

Although its price has surged higher, there still wouldn't be many who think Yonghui Superstores' price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in China's Consumer Retailing industry is similar at about 0.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Yonghui Superstores

How Has Yonghui Superstores Performed Recently?

Yonghui Superstores hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Keen to find out how analysts think Yonghui Superstores' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For Yonghui Superstores?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Yonghui Superstores' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. As a result, revenue from three years ago have also fallen 21% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 5.1% during the coming year according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 12%, which is noticeably more attractive.

With this information, we find it interesting that Yonghui Superstores is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From Yonghui Superstores' P/S?

Its shares have lifted substantially and now Yonghui Superstores' P/S is back within range of the industry median. 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.

Our look at the analysts forecasts of Yonghui Superstores' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Yonghui Superstores that you should be aware of.

If you're unsure about the strength of Yonghui Superstores' 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.