When you see that almost half of the companies in the Food industry in China have price-to-sales ratios (or "P/S") below 2x, Yuan Long Ping High-Tech Agriculture Co., Ltd. (SZSE:000998) looks to be giving off strong sell signals with its 4.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Yuan Long Ping High-Tech Agriculture

How Has Yuan Long Ping High-Tech Agriculture Performed Recently?

Yuan Long Ping High-Tech Agriculture's revenue growth of late has been pretty similar to most other companies. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Yuan Long Ping High-Tech Agriculture's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. Pleasingly, revenue has also lifted 55% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 25% during the coming year according to the nine analysts following the company. That's shaping up to be materially higher than the 17% growth forecast for the broader industry.

With this information, we can see why Yuan Long Ping High-Tech Agriculture is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Yuan Long Ping High-Tech Agriculture's P/S Mean For Investors?

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 Yuan Long Ping High-Tech Agriculture maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Food industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Yuan Long Ping High-Tech Agriculture with six simple checks.

If you're unsure about the strength of Yuan Long Ping High-Tech Agriculture's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.