The Market Lifts Yatsen Holding Limited (NYSE:YSG) Shares 129% But It Can Do More

Yatsen Holding Limited (NYSE:YSG) shareholders would be excited to see that the share price has had a great month, posting a 129% gain and recovering from prior weakness. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 4.2% in the last twelve months.

Even after such a large jump in price, Yatsen Holding may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.1x, since almost half of all companies in the Personal Products industry in the United States have P/S ratios greater than 1.7x and even P/S higher than 4x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Yatsen Holding

What Does Yatsen Holding's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Yatsen Holding's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Yatsen Holding will help you uncover what's on the horizon.

How Is Yatsen Holding's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 7.9% decrease to the company's top line. As a result, revenue from three years ago have also fallen 35% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 9.6% each year as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 6.0% per year growth forecast for the broader industry.

With this information, we find it odd that Yatsen Holding is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Despite Yatsen Holding's share price climbing recently, its P/S still lags most other companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

To us, it seems Yatsen Holding currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You always need to take note of risks, for example - Yatsen Holding has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on Yatsen Holding, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.