Gansu Huangtai Wine-Marketing Industry Co.,Ltd's (SZSE:000995) 26% Price Boost Is Out Of Tune With Revenues

Gansu Huangtai Wine-Marketing Industry Co.,Ltd (SZSE:000995) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 43% over that time.

Since its price has surged higher, when almost half of the companies in China's Beverage industry have price-to-sales ratios (or "P/S") below 4.6x, you may consider Gansu Huangtai Wine-Marketing IndustryLtd as a stock not worth researching with its 11.2x 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.

See our latest analysis for Gansu Huangtai Wine-Marketing IndustryLtd

How Has Gansu Huangtai Wine-Marketing IndustryLtd Performed Recently?

Gansu Huangtai Wine-Marketing IndustryLtd has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Gansu Huangtai Wine-Marketing IndustryLtd will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Gansu Huangtai Wine-Marketing IndustryLtd?

Gansu Huangtai Wine-Marketing IndustryLtd's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.6% last year. This was backed up an excellent period prior to see revenue up by 44% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 15% shows it's noticeably less attractive.

With this information, we find it concerning that Gansu Huangtai Wine-Marketing IndustryLtd is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates 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.

What Does Gansu Huangtai Wine-Marketing IndustryLtd's P/S Mean For Investors?

Gansu Huangtai Wine-Marketing IndustryLtd'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.

The fact that Gansu Huangtai Wine-Marketing IndustryLtd currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Gansu Huangtai Wine-Marketing IndustryLtd with six simple checks will allow you to discover any risks that could be an issue.

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.

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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.