Yatsen Holding Limited (NYSE:YSG) May Have Run Too Fast Too Soon With Recent 35% Price Plummet

Unfortunately for some shareholders, the Yatsen Holding Limited (NYSE:YSG) share price has dived 35% in the last thirty days, prolonging recent pain. Looking at the bigger picture, even after this poor month the stock is up 40% in the last year.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Yatsen Holding's P/S ratio of 1x, since the median price-to-sales (or "P/S") ratio for the Personal Products industry in the United States is also close to 0.8x. 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 Yatsen Holding

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

Yatsen Holding has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Yatsen Holding's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

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

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 11% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 145,995% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Yatsen Holding's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

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

Following Yatsen Holding's share price tumble, its P/S is just clinging on to the industry median P/S. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

The fact that Yatsen Holding currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Yatsen Holding with six simple checks.

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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.