It's not a stretch to say that Yueyang Forest & Paper Co., Ltd.'s (SHSE:600963) price-to-sales (or "P/S") ratio of 0.9x right now seems quite "middle-of-the-road" for companies in the Forestry industry in China, where the median P/S ratio is around 1.3x. 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.

What Does Yueyang Forest & Paper's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Yueyang Forest & Paper's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Do Revenue Forecasts Match The P/S Ratio?

Yueyang Forest & Paper's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 29%. The last three years don't look nice either as the company has shrunk revenue by 5.8% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 27% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 13%, which is noticeably less attractive.

In light of this, it's curious that Yueyang Forest & Paper's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Yueyang Forest & Paper's P/S Mean For Investors?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Yueyang Forest & Paper currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Plus, you should also learn about this 1 warning sign we've spotted with Yueyang Forest & Paper.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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.