What Xinjiang Youhao(Group)Co.,Ltd's (SHSE:600778) 31% Share Price Gain Is Not Telling You

Xinjiang Youhao(Group)Co.,Ltd (SHSE:600778) shareholders would be excited to see that the share price has had a great month, posting a 31% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 30% in the last twelve months.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Xinjiang Youhao(Group)Co.Ltd's P/S ratio of 0.9x, since the median price-to-sales (or "P/S") ratio for the Multiline Retail industry in China is also close to 1.3x. 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.

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

What Does Xinjiang Youhao(Group)Co.Ltd's Recent Performance Look Like?

Xinjiang Youhao(Group)Co.Ltd has been doing a good job lately as it's been growing revenue at a solid pace. 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.

How Is Xinjiang Youhao(Group)Co.Ltd's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Xinjiang Youhao(Group)Co.Ltd's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 20%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 18% drop in revenue in aggregate. 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 17% 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 Final Word

Its shares have lifted substantially and now Xinjiang Youhao(Group)Co.Ltd's P/S is back within range of the industry median. 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.

The fact that Xinjiang Youhao(Group)Co.Ltd 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.

Having said that, be aware Xinjiang Youhao(Group)Co.Ltd is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

If these risks are making you reconsider your opinion on Xinjiang Youhao(Group)Co.Ltd, 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.