Investors Give Foshan Yowant Technology Co.,Ltd (SZSE:002291) Shares A 29% Hiding

The Foshan Yowant Technology Co.,Ltd (SZSE:002291) share price has softened a substantial 29% over the previous 30 days, handing back much of the gains the stock has made lately. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 28% in that time.

Since its price has dipped substantially, Foshan Yowant TechnologyLtd may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1x, since almost half of all companies in the Media industry in China have P/S ratios greater than 3.2x and even P/S higher than 6x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Foshan Yowant TechnologyLtd

How Foshan Yowant TechnologyLtd Has Been Performing

With revenue growth that's superior to most other companies of late, Foshan Yowant TechnologyLtd has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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.

Is There Any Revenue Growth Forecasted For Foshan Yowant TechnologyLtd?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Foshan Yowant TechnologyLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. The latest three year period has also seen an excellent 121% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 22% during the coming year according to the sole analyst following the company. With the industry only predicted to deliver 12%, the company is positioned for a stronger revenue result.

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 Bottom Line On Foshan Yowant TechnologyLtd's P/S

Having almost fallen off a cliff, Foshan Yowant TechnologyLtd's share price has pulled its P/S way down as well. 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.

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. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 1 warning sign for Foshan Yowant TechnologyLtd that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.