Zhejiang Yilida Ventilator Co.,Ltd. (SZSE:002686) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 20% in the last twelve months.

In spite of the firm bounce in price, it's still not a stretch to say that Zhejiang Yilida VentilatorLtd's price-to-sales (or "P/S") ratio of 1.8x right now seems quite "middle-of-the-road" compared to the Building industry in China, where the median P/S ratio is around 1.3x. 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 Yilida VentilatorLtd's P/S Mean For Shareholders?

For example, consider that Zhejiang Yilida VentilatorLtd's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Zhejiang Yilida VentilatorLtd's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 6.6% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 13% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 21% 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 Yilida VentilatorLtd'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.

The Final Word

Its shares have lifted substantially and now Zhejiang Yilida VentilatorLtd'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.

The fact that Zhejiang Yilida VentilatorLtd 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.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Zhejiang Yilida VentilatorLtd with six simple checks.

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

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