Positive Sentiment Still Eludes China Youran Dairy Group Limited (HKG:9858) Following 27% Share Price Slump

The China Youran Dairy Group Limited (HKG:9858) share price has softened a substantial 27% over the previous 30 days, handing back much of the gains the stock has made lately. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 193% in the last twelve months.

Although its price has dipped substantially, there still wouldn't be many who think China Youran Dairy Group's price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in Hong Kong's Food industry is similar at about 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for China Youran Dairy Group

What Does China Youran Dairy Group's P/S Mean For Shareholders?

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.

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Is There Some Revenue Growth Forecasted For China Youran Dairy Group?

There's an inherent assumption that a company should be matching the industry for P/S ratios like China Youran Dairy Group's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.3% last year. Revenue has also lifted 21% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 6.6% during the coming year according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 4.1%, which is noticeably less attractive.

With this information, we find it interesting that China Youran Dairy Group is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

What Does China Youran Dairy Group's P/S Mean For Investors?

Following China Youran Dairy Group's share price tumble, its P/S is just clinging on to the industry median P/S. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

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. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Before you take the next step, you should know about the 2 warning signs for China Youran Dairy Group that we have uncovered.

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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.