Investors Aren't Buying Shanghai Yuyuan Tourist Mart (Group) Co., Ltd.'s (SHSE:600655) Revenues

When you see that almost half of the companies in the Specialty Retail industry in China have price-to-sales ratios (or "P/S") above 1.2x, Shanghai Yuyuan Tourist Mart (Group) Co., Ltd. (SHSE:600655) looks to be giving off some buy signals with its 0.4x P/S ratio. 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 Shanghai Yuyuan Tourist Mart (Group)

What Does Shanghai Yuyuan Tourist Mart (Group)'s Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Shanghai Yuyuan Tourist Mart (Group) has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. 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 out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai Yuyuan Tourist Mart (Group).

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

In order to justify its P/S ratio, Shanghai Yuyuan Tourist Mart (Group) would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.7% last year. The latest three year period has also seen a 21% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 11% over the next year. Meanwhile, the rest of the industry is forecast to expand by 15%, which is noticeably more attractive.

With this information, we can see why Shanghai Yuyuan Tourist Mart (Group) is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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.

As expected, our analysis of Shanghai Yuyuan Tourist Mart (Group)'s analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Shanghai Yuyuan Tourist Mart (Group) (1 is potentially serious!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Shanghai Yuyuan Tourist Mart (Group), 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.