Improved Revenues Required Before Youcare Pharmaceutical Group Co., Ltd. (SHSE:688658) Stock's 34% Jump Looks Justified

The Youcare Pharmaceutical Group Co., Ltd. (SHSE:688658) share price has done very well over the last month, posting an excellent gain of 34%. Looking further back, the 22% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, Youcare Pharmaceutical Group may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.5x, since almost half of all companies in the Pharmaceuticals industry in China have P/S ratios greater than 3.3x and even P/S higher than 7x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Youcare Pharmaceutical Group

What Does Youcare Pharmaceutical Group's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Youcare Pharmaceutical Group's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

How Is Youcare Pharmaceutical Group's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Youcare Pharmaceutical Group's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 18%. This means it has also seen a slide in revenue over the longer-term as revenue is down 18% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 14% over the next year. Meanwhile, the rest of the industry is forecast to expand by 140%, which is noticeably more attractive.

With this in consideration, its clear as to why Youcare Pharmaceutical Group's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Youcare Pharmaceutical Group's stock price has surged recently, but its but its P/S still remains modest. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Youcare Pharmaceutical Group maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Youcare Pharmaceutical Group is showing 3 warning signs in our investment analysis, you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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