The Zhejiang Youpon Integrated Ceiling Co.,Ltd. (SZSE:002718) share price has done very well over the last month, posting an excellent gain of 47%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Zhejiang Youpon Integrated CeilingLtd's P/S ratio of 2x, since the median price-to-sales (or "P/S") ratio for the Consumer Durables industry in China is also close to 1.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

What Does Zhejiang Youpon Integrated CeilingLtd's P/S Mean For Shareholders?

For example, consider that Zhejiang Youpon Integrated CeilingLtd's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

The only time you'd be comfortable seeing a P/S like Zhejiang Youpon Integrated CeilingLtd's is when the company's growth is tracking the industry closely.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.1%. 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.

In contrast to the company, the rest of the industry is expected to grow by 9.3% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Zhejiang Youpon Integrated CeilingLtd's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. 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 the recent negative growth rates.

What Does Zhejiang Youpon Integrated CeilingLtd's P/S Mean For Investors?

Its shares have lifted substantially and now Zhejiang Youpon Integrated CeilingLtd's P/S is back within range of the industry median. 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.

Our look at Zhejiang Youpon Integrated CeilingLtd revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given 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. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

It is also worth noting that we have found 2 warning signs for Zhejiang Youpon Integrated CeilingLtd that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.