Shanghai Yongguan Adhesive Products Corp., Ltd.'s (SHSE:603681) Revenues Are Not Doing Enough For Some Investors

With a price-to-sales (or "P/S") ratio of 0.5x Shanghai Yongguan Adhesive Products Corp., Ltd. (SHSE:603681) may be sending bullish signals at the moment, given that almost half of all the Chemicals companies in China have P/S ratios greater than 2x and even P/S higher than 4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Shanghai Yongguan Adhesive Products

How Has Shanghai Yongguan Adhesive Products Performed Recently?

Shanghai Yongguan Adhesive Products certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Want the full picture on analyst estimates for the company? Then our free report on Shanghai Yongguan Adhesive Products will help you uncover what's on the horizon.

How Is Shanghai Yongguan Adhesive Products' Revenue Growth Trending?

Shanghai Yongguan Adhesive Products' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a decent 7.9% gain to the company's revenues. The latest three year period has also seen an excellent 124% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 7.9% during the coming year according to the only analyst following the company. With the industry predicted to deliver 26% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Shanghai Yongguan Adhesive Products' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

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.

As expected, our analysis of Shanghai Yongguan Adhesive Products' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Shanghai Yongguan Adhesive Products (at least 2 which are a bit concerning), and understanding them should be part of your investment process.

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.