Market Might Still Lack Some Conviction On Yunnan Energy International Co. Limited (HKG:1298) Even After 29% Share Price Boost

Those holding Yunnan Energy International Co. Limited (HKG:1298) shares would be relieved that the share price has rebounded 29% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 20% in the last twelve months.

In spite of the firm bounce in price, it's still not a stretch to say that Yunnan Energy International's price-to-sales (or "P/S") ratio of 0.5x right now seems quite "middle-of-the-road" compared to the Healthcare industry in Hong Kong, where the median P/S ratio is around 0.9x. 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.

Check out our latest analysis for Yunnan Energy International

What Does Yunnan Energy International's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Yunnan Energy International has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

How Is Yunnan Energy International's Revenue Growth Trending?

In order to justify its P/S ratio, Yunnan Energy International would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 61%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

When compared to the industry's one-year growth forecast of 12%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's curious that Yunnan Energy International's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On Yunnan Energy International's P/S

Yunnan Energy International appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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 Yunnan Energy International'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.

Before you take the next step, you should know about the 4 warning signs for Yunnan Energy International (2 don't sit too well with us!) that we have uncovered.

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.