China Youran Dairy Group Limited (HKG:9858) Stock Rockets 32% But Many Are Still Ignoring The Company

China Youran Dairy Group Limited (HKG:9858) shares have had a really impressive month, gaining 32% after a shaky period beforehand. The annual gain comes to 220% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, it's still not a stretch to say that China Youran Dairy Group's price-to-sales (or "P/S") ratio of 0.7x right now seems quite "middle-of-the-road" compared to the Food industry in Hong Kong, where the median P/S ratio is around 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Check out our latest analysis for China Youran Dairy Group

How China Youran Dairy Group Has Been Performing

China Youran Dairy Group could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on China Youran Dairy Group.

How Is China Youran Dairy Group's Revenue Growth Trending?

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

Retrospectively, the last year delivered a decent 3.3% gain to the company's revenues. The latest three year period has also seen a 21% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 6.9% over the next year. That's shaping up to be materially higher than the 4.8% growth forecast for the broader industry.

With this in consideration, we find it intriguing that China Youran Dairy Group's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

China Youran Dairy Group's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that China Youran Dairy Group currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for China Youran Dairy Group that you need to be mindful of.

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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.