Y.U.D.Yangtze River Investment Industry Co.,Ltd.'s (SHSE:600119) 29% Share Price Plunge Could Signal Some Risk

Y.U.D.Yangtze River Investment Industry Co.,Ltd. (SHSE:600119) shares have retraced a considerable 29% in the last month, reversing a fair amount of their solid recent performance. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 13%.

Although its price has dipped substantially, you could still be forgiven for thinking Y.U.D.Yangtze River Investment IndustryLtd is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.2x, considering almost half the companies in China's Logistics industry have P/S ratios below 1.2x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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

How Y.U.D.Yangtze River Investment IndustryLtd Has Been Performing

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. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Y.U.D.Yangtze River Investment IndustryLtd will help you shine a light on its historical performance.

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

There's an inherent assumption that a company should 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 35%. Even so, admirably revenue has lifted 60% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 16% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this information, we find it interesting that Y.U.D.Yangtze River Investment IndustryLtd is trading at a high P/S compared to the industry. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as a continuation of recent revenue trends would weigh down the share price eventually.

The Final Word

There's still some elevation in Y.U.D.Yangtze River Investment IndustryLtd's P/S, even if the same can't be said for its share price recently. 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 examination of Y.U.D.Yangtze River Investment IndustryLtd revealed its three-year revenue trends aren't impacting its high P/S as much as we would have predicted, given they look similar to current industry expectations. When we see average revenue with industry-like growth combined with a high P/S, we suspect the share price is at risk of declining, bringing the P/S back in line with the industry too. Unless there is a significant improvement in the company's medium-term trends, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Plus, you should also learn about this 1 warning sign we've spotted with Y.U.D.Yangtze River Investment IndustryLtd.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.