Even With A 31% Surge, Cautious Investors Are Not Rewarding YSB Inc.'s (HKG:9885) Performance Completely

YSB Inc. (HKG:9885) shares have had a really impressive month, gaining 31% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 12% over that time.

Although its price has surged higher, it would still be understandable if you think YSB is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.3x, considering almost half the companies in Hong Kong's Healthcare industry have P/S ratios above 0.8x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Our free stock report includes 1 warning sign investors should be aware of before investing in YSB. Read for free now.

Check out our latest analysis for YSB

What Does YSB's P/S Mean For Shareholders?

Revenue has risen at a steady rate over the last year for YSB, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. 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 out of favour.

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

Is There Any Revenue Growth Forecasted For YSB?

In order to justify its P/S ratio, YSB would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 5.5% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 77% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Comparing that to the industry, which is only predicted to deliver 8.7% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's peculiar that YSB's P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From YSB's P/S?

Despite YSB's share price climbing recently, its P/S still lags most other companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of YSB revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Having said that, be aware YSB is showing 1 warning sign in our investment analysis, 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.