Shanghai Lily&Beauty Cosmetics Co.,Ltd. (SHSE:605136) Could Be Riskier Than It Looks

It's not a stretch to say that Shanghai Lily&Beauty Cosmetics Co.,Ltd.'s (SHSE:605136) price-to-sales (or "P/S") ratio of 1x right now seems quite "middle-of-the-road" for companies in the Specialty Retail industry in China, where the median P/S ratio is around 0.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Shanghai Lily&Beauty CosmeticsLtd

How Has Shanghai Lily&Beauty CosmeticsLtd Performed Recently?

Shanghai Lily&Beauty CosmeticsLtd hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Shanghai Lily&Beauty CosmeticsLtd's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Shanghai Lily&Beauty CosmeticsLtd's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Shanghai Lily&Beauty CosmeticsLtd's is when the company's growth is tracking the industry closely.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 17%. This means it has also seen a slide in revenue over the longer-term as revenue is down 44% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 22% during the coming year according to the only analyst following the company. With the industry only predicted to deliver 18%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Shanghai Lily&Beauty CosmeticsLtd's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

What Does Shanghai Lily&Beauty CosmeticsLtd's P/S Mean For Investors?

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.

Despite enticing revenue growth figures that outpace the industry, Shanghai Lily&Beauty CosmeticsLtd's P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Shanghai Lily&Beauty CosmeticsLtd 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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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.