The YuanShengTai Dairy Farm Limited (HKG:1431) share price has done very well over the last month, posting an excellent gain of 89%. The last 30 days bring the annual gain to a very sharp 74%.

Although its price has surged higher, there still wouldn't be many who think YuanShengTai Dairy Farm's price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in Hong Kong's Food industry is similar at about 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

How YuanShengTai Dairy Farm Has Been Performing

The revenue growth achieved at YuanShengTai Dairy Farm over the last year would be more than acceptable for most companies. 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.

Is There Some Revenue Growth Forecasted For YuanShengTai Dairy Farm?

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

If we review the last year of revenue growth, the company posted a worthy increase of 7.8%. This was backed up an excellent period prior to see revenue up by 42% 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 recent medium-term revenue trajectory with the industry's one-year growth forecast of 6.6% shows it's noticeably more attractive.

With this information, we find it interesting that YuanShengTai Dairy Farm is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

What Does YuanShengTai Dairy Farm's P/S Mean For Investors?

Its shares have lifted substantially and now YuanShengTai Dairy Farm's P/S is back within range of the industry median. 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.

We've established that YuanShengTai Dairy Farm currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you take the next step, you should know about the 1 warning sign for YuanShengTai Dairy Farm that we have uncovered.

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.