Even With A 26% Surge, Cautious Investors Are Not Rewarding YuanShengTai Dairy Farm Limited's (HKG:1431) Performance Completely

Explore YuanShengTai Dairy Farm's Fair Values from the Community and select yours

Despite an already strong run, YuanShengTai Dairy Farm Limited (HKG:1431) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 276% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, you could still be forgiven for feeling indifferent about YuanShengTai Dairy Farm's P/S ratio of 0.6x, since the median price-to-sales (or "P/S") ratio for the Food industry in Hong Kong is also close to 0.7x. 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.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

Check out our latest analysis for YuanShengTai Dairy Farm

How YuanShengTai Dairy Farm Has Been Performing

YuanShengTai Dairy Farm has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on YuanShengTai Dairy Farm will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for YuanShengTai Dairy Farm, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is YuanShengTai Dairy Farm's Revenue Growth Trending?

In order to justify its P/S ratio, YuanShengTai Dairy Farm would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 16% gain to the company's top line. The latest three year period has also seen an excellent 44% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that to the industry, which is only predicted to deliver 4.5% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it interesting that YuanShengTai Dairy Farm is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

What Does YuanShengTai Dairy Farm's P/S Mean For Investors?

Its shares have lifted substantially and now YuanShengTai Dairy Farm's P/S is back within range of the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We didn't quite envision YuanShengTai Dairy Farm's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

You should always think about risks. Case in point, we've spotted 2 warning signs for YuanShengTai Dairy Farm you should be aware of, and 1 of them is significant.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.