Shareholders Should Be Pleased With Shiyue Daotian Group Co., Ltd.'s (HKG:9676) Price

When you see that almost half of the companies in the Food industry in Hong Kong have price-to-sales ratios (or "P/S") below 0.7x, Shiyue Daotian Group Co., Ltd. (HKG:9676) looks to be giving off some sell signals with its 1.4x 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 as high as it is.

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View our latest analysis for Shiyue Daotian Group

How Has Shiyue Daotian Group Performed Recently?

The revenue growth achieved at Shiyue Daotian Group over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shiyue Daotian Group will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Shiyue Daotian Group?

In order to justify its P/S ratio, Shiyue Daotian Group would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 18%. Pleasingly, revenue has also lifted 60% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 4.3% shows it's noticeably more attractive.

With this information, we can see why Shiyue Daotian Group is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

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.

It's no surprise that Shiyue Daotian Group can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Shiyue Daotian Group you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.