Yang Ming Marine Transport Corporation (TWSE:2609) Stock Catapults 36% Though Its Price And Business Still Lag The Industry

Yang Ming Marine Transport Corporation (TWSE:2609) shareholders would be excited to see that the share price has had a great month, posting a 36% gain and recovering from prior weakness. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Even after such a large jump in price, it would still be understandable if you think Yang Ming Marine Transport is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 1.5x, considering almost half the companies in Taiwan's Shipping industry have P/S ratios above 2.4x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Yang Ming Marine Transport

What Does Yang Ming Marine Transport's P/S Mean For Shareholders?

Yang Ming Marine Transport has been struggling lately as its revenue has declined faster than most other companies. The P/S ratio is probably low because investors think this poor revenue performance isn't going to improve at all. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Yang Ming Marine Transport will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Yang Ming Marine Transport?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Yang Ming Marine Transport's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 63%. This means it has also seen a slide in revenue over the longer-term as revenue is down 7.0% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 11% during the coming year according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 14%, which is noticeably more attractive.

With this in consideration, its clear as to why Yang Ming Marine Transport's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Yang Ming Marine Transport's P/S Mean For Investors?

Despite Yang Ming Marine Transport's share price climbing recently, its P/S still lags most other companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Yang Ming Marine Transport maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - Yang Ming Marine Transport has 3 warning signs (and 2 which are potentially serious) we think you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.