Revenues Not Telling The Story For Xinjiang Youhao(Group)Co.,Ltd (SHSE:600778) After Shares Rise 35%

Despite an already strong run, Xinjiang Youhao(Group)Co.,Ltd (SHSE:600778) shares have been powering on, with a gain of 35% in the last thirty days. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 5.1% over the last year.

Although its price has surged higher, it's still not a stretch to say that Xinjiang Youhao(Group)Co.Ltd's price-to-sales (or "P/S") ratio of 1.1x right now seems quite "middle-of-the-road" compared to the Multiline Retail industry in China, where the median P/S ratio is around 1.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Xinjiang Youhao(Group)Co.Ltd

How Has Xinjiang Youhao(Group)Co.Ltd Performed Recently?

The revenue growth achieved at Xinjiang Youhao(Group)Co.Ltd over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

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 Xinjiang Youhao(Group)Co.Ltd's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Xinjiang Youhao(Group)Co.Ltd?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Xinjiang Youhao(Group)Co.Ltd's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 19% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 17% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 14% 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 Xinjiang Youhao(Group)Co.Ltd's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Key Takeaway

Xinjiang Youhao(Group)Co.Ltd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look at Xinjiang Youhao(Group)Co.Ltd revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Xinjiang Youhao(Group)Co.Ltd that you should be aware of.

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.