Y.U.D.Yangtze River Investment Industry Co.,Ltd.'s (SHSE:600119) 25% Share Price Plunge Could Signal Some Risk

The Y.U.D.Yangtze River Investment Industry Co.,Ltd. (SHSE:600119) share price has softened a substantial 25% over the previous 30 days, handing back much of the gains the stock has made lately. Longer-term, the stock has been solid despite a difficult 30 days, gaining 15% in the last year.

Although its price has dipped substantially, given around half the companies in China's Logistics industry have price-to-sales ratios (or "P/S") below 1.1x, you may still consider Y.U.D.Yangtze River Investment IndustryLtd as a stock to avoid entirely with its 4.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Y.U.D.Yangtze River Investment IndustryLtd

How Has Y.U.D.Yangtze River Investment IndustryLtd Performed Recently?

For instance, Y.U.D.Yangtze River Investment IndustryLtd's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Y.U.D.Yangtze River Investment IndustryLtd's earnings, revenue and cash flow.

How Is Y.U.D.Yangtze River Investment IndustryLtd's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Y.U.D.Yangtze River Investment IndustryLtd's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 27%. This means it has also seen a slide in revenue over the longer-term as revenue is down 31% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 13% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Y.U.D.Yangtze River Investment IndustryLtd is trading at a P/S higher than the industry. 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 heavily on the share price eventually.

The Key Takeaway

Even after such a strong price drop, Y.U.D.Yangtze River Investment IndustryLtd's P/S still exceeds the industry median significantly. 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.

Our examination of Y.U.D.Yangtze River Investment IndustryLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Y.U.D.Yangtze River Investment IndustryLtd you should know about.

If these risks are making you reconsider your opinion on Y.U.D.Yangtze River Investment IndustryLtd, 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.