Gansu Huangtai Wine-Marketing Industry Co.,Ltd (SZSE:000995) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 46% in the last twelve months.

Following the firm bounce in price, given around half the companies in China's Beverage industry have price-to-sales ratios (or "P/S") below 4.7x, you may consider Gansu Huangtai Wine-Marketing IndustryLtd as a stock to avoid entirely with its 10.8x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

What Does Gansu Huangtai Wine-Marketing IndustryLtd's P/S Mean For Shareholders?

Gansu Huangtai Wine-Marketing IndustryLtd has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Gansu Huangtai Wine-Marketing IndustryLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 7.6%. This was backed up an excellent period prior to see revenue up by 44% 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 predicted to deliver 15% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it concerning that Gansu Huangtai Wine-Marketing IndustryLtd is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Gansu Huangtai Wine-Marketing IndustryLtd's P/S Mean For Investors?

Gansu Huangtai Wine-Marketing IndustryLtd's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

Our examination of Gansu Huangtai Wine-Marketing IndustryLtd revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Gansu Huangtai Wine-Marketing IndustryLtd with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on Gansu Huangtai Wine-Marketing IndustryLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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