Foshan Yowant Technology Co.,Ltd (SZSE:002291) Stock Rockets 28% But Many Are Still Ignoring The Company

Foshan Yowant Technology Co.,Ltd (SZSE:002291) shares have continued their recent momentum with a 28% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 34% over that time.

In spite of the firm bounce in price, Foshan Yowant TechnologyLtd's price-to-sales (or "P/S") ratio of 1.1x might still make it look like a strong buy right now compared to the wider Media industry in China, where around half of the companies have P/S ratios above 3.3x and even P/S above 7x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Foshan Yowant TechnologyLtd

What Does Foshan Yowant TechnologyLtd's P/S Mean For Shareholders?

Recent times have been advantageous for Foshan Yowant TechnologyLtd as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. 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 Foshan Yowant TechnologyLtd will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

Foshan Yowant TechnologyLtd's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 121% in total over the last three years. 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 22% during the coming year according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 15%, which is noticeably less attractive.

With this information, we find it odd that Foshan Yowant TechnologyLtd is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Foshan Yowant TechnologyLtd's recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

To us, it seems Foshan Yowant TechnologyLtd currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Foshan Yowant TechnologyLtd with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Foshan Yowant TechnologyLtd, 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.