What You Can Learn From Shiyue Daotian Group Co., Ltd.'s (HKG:9676) P/S

Shiyue Daotian Group Co., Ltd.'s (HKG:9676) price-to-sales (or "P/S") ratio of 4.3x may look like a poor investment opportunity when you consider close to half the companies in the Food industry in Hong Kong have P/S ratios below 0.6x. 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 Shiyue Daotian Group

What Does Shiyue Daotian Group's P/S Mean For Shareholders?

Shiyue Daotian Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Shiyue Daotian Group's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Shiyue Daotian Group would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 7.4% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 109% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 39% as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 11%, which is noticeably less attractive.

In light of this, it's understandable that Shiyue Daotian Group's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look into Shiyue Daotian Group shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 1 warning sign for Shiyue Daotian Group that you need to take into consideration.

If these risks are making you reconsider your opinion on Shiyue Daotian Group, 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.