Optimistic Investors Push Yongyue Science&Technology Co.,Ltd (SHSE:603879) Shares Up 32% But Growth Is Lacking

Yongyue Science&Technology Co.,Ltd (SHSE:603879) shares have continued their recent momentum with a 32% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 40% in the last twelve months.

Since its price has surged higher, you could be forgiven for thinking Yongyue Science&TechnologyLtd is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.9x, considering almost half the companies in China's Chemicals industry have P/S ratios below 2.4x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Yongyue Science&TechnologyLtd

How Yongyue Science&TechnologyLtd Has Been Performing

Yongyue Science&TechnologyLtd has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. 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 Yongyue Science&TechnologyLtd will help you shine a light on its historical performance.

How Is Yongyue Science&TechnologyLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Yongyue Science&TechnologyLtd's is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 15% last year. Still, lamentably revenue has fallen 22% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 25% shows it's an unpleasant look.

With this in mind, we find it worrying that Yongyue Science&TechnologyLtd's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Yongyue Science&TechnologyLtd's P/S?

Yongyue Science&TechnologyLtd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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 examination of Yongyue Science&TechnologyLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. 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.

Plus, you should also learn about this 1 warning sign we've spotted with Yongyue Science&TechnologyLtd.

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.