LiJiang YuLong Tourism Co., LTD.'s (SZSE:002033) Share Price Could Signal Some Risk

It's not a stretch to say that LiJiang YuLong Tourism Co., LTD.'s (SZSE:002033) price-to-sales (or "P/S") ratio of 7x right now seems quite "middle-of-the-road" for companies in the Hospitality industry in China, where the median P/S ratio is around 5.9x. 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 LiJiang YuLong Tourism

How LiJiang YuLong Tourism Has Been Performing

With revenue growth that's superior to most other companies of late, LiJiang YuLong Tourism has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on LiJiang YuLong Tourism.

How Is LiJiang YuLong Tourism's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like LiJiang YuLong Tourism's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 152%. Pleasingly, revenue has also lifted 85% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 7.5% each year as estimated by the four analysts watching the company. With the industry predicted to deliver 14% growth per year, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that LiJiang YuLong Tourism's P/S is closely matching its industry peers. 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 LiJiang YuLong Tourism's P/S?

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 LiJiang YuLong Tourism's 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. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with LiJiang YuLong Tourism, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on LiJiang YuLong Tourism, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.