Y.U.D.Yangtze River Investment Industry Co.,Ltd.'s (SHSE:600119) Shares May Have Run Too Fast Too Soon

When you see that almost half of the companies in the Logistics industry in China have price-to-sales ratios (or "P/S") below 1.2x, Y.U.D.Yangtze River Investment Industry Co.,Ltd. (SHSE:600119) looks to be giving off strong sell signals with its 3.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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

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

As an illustration, revenue has deteriorated at Y.U.D.Yangtze River Investment IndustryLtd over the last year, which is not ideal at all. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for Y.U.D.Yangtze River Investment IndustryLtd, take a look at this free data-rich visualisation to see how the company stacks up on 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.

Retrospectively, the last year delivered a frustrating 15% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 11% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the industry, which is expected to grow by 15% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that Y.U.D.Yangtze River Investment IndustryLtd's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

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.

The fact that Y.U.D.Yangtze River Investment IndustryLtd currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Y.U.D.Yangtze River Investment IndustryLtd with six simple checks on some of these key factors.

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.