What Yunnan Metropolitan RealEstate Development Co.Ltd's (SHSE:600239) 53% Share Price Gain Is Not Telling You

Yunnan Metropolitan RealEstate Development Co.Ltd (SHSE:600239) shareholders have had their patience rewarded with a 53% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 24% is also fairly reasonable.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Yunnan Metropolitan RealEstate DevelopmentLtd's P/S ratio of 2.2x, since the median price-to-sales (or "P/S") ratio for the Real Estate industry in China is also close to 1.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Yunnan Metropolitan RealEstate DevelopmentLtd

What Does Yunnan Metropolitan RealEstate DevelopmentLtd's Recent Performance Look Like?

Revenue has risen at a steady rate over the last year for Yunnan Metropolitan RealEstate DevelopmentLtd, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Yunnan Metropolitan RealEstate DevelopmentLtd's earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Yunnan Metropolitan RealEstate DevelopmentLtd's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.3% last year. Still, lamentably revenue has fallen 36% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 11% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Yunnan Metropolitan RealEstate DevelopmentLtd's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a 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 Does Yunnan Metropolitan RealEstate DevelopmentLtd's P/S Mean For Investors?

Yunnan Metropolitan RealEstate DevelopmentLtd appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

The fact that Yunnan Metropolitan RealEstate DevelopmentLtd currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Yunnan Metropolitan RealEstate DevelopmentLtd with six simple checks will allow you to discover any risks that could be an issue.

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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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.