Foshan Yowant Technology Co.,Ltd's (SZSE:002291) Shares Leap 25% Yet They're Still Not Telling The Full Story

Foshan Yowant Technology Co.,Ltd (SZSE:002291) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 47% over that time.

In spite of the firm bounce in price, Foshan Yowant TechnologyLtd's price-to-sales (or "P/S") ratio of 0.9x might still make it look like a buy right now compared to the Media industry in China, where around half of the companies have P/S ratios above 2.3x and even P/S above 6x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Foshan Yowant TechnologyLtd

What Does Foshan Yowant TechnologyLtd's Recent Performance Look Like?

Recent times have been advantageous for Foshan Yowant TechnologyLtd as its revenues have been rising faster 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.

Keen to find out how analysts think Foshan Yowant TechnologyLtd's future stacks up against the industry? In that case, our free report is a great place to start.

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

In order to justify its P/S ratio, Foshan Yowant TechnologyLtd would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 26% last year. The strong recent performance means it was also able to grow revenue by 144% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 16% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 13%, 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. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

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

Foshan Yowant TechnologyLtd's stock price has surged recently, but its but its P/S still remains modest. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A look at Foshan Yowant TechnologyLtd's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Before you take the next step, you should know about the 1 warning sign for Foshan Yowant TechnologyLtd that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.