The Yonghui Superstores Co., Ltd. (SHSE:601933) share price has done very well over the last month, posting an excellent gain of 55%. Looking further back, the 13% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, there still wouldn't be many who think Yonghui Superstores' price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in China's Consumer Retailing industry is similar at about 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Has Yonghui Superstores Performed Recently?

Yonghui Superstores could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Yonghui Superstores would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 11% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 17% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 1.3% during the coming year according to the analysts following the company. With the industry predicted to deliver 13% growth, the company is positioned for a weaker revenue result.

With this information, we find it interesting that Yonghui Superstores is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Yonghui Superstores' P/S

Its shares have lifted substantially and now Yonghui Superstores' 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.

When you consider that Yonghui Superstores' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

You should always think about risks. Case in point, we've spotted 1 warning sign for Yonghui Superstores you should be aware of.

If you're unsure about the strength of Yonghui Superstores' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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