Yunnan Energy International Co. Limited (HKG:1298) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. The last month has meant the stock is now only up 8.3% during the last year.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Yunnan Energy International's P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Healthcare industry in Hong Kong is also close to 0.9x. 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 Yunnan Energy International's P/S Mean For Shareholders?

Yunnan Energy International certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't 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?

Yunnan Energy International'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.

If we review the last year of revenue growth, the company posted a terrific increase of 61%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

When compared to the industry's one-year growth forecast of 14%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's curious that Yunnan Energy International's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Yunnan Energy International's P/S?

Following Yunnan Energy International's share price tumble, its P/S is just clinging on to the industry median P/S. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

To our surprise, Yunnan Energy International revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

It is also worth noting that we have found 3 warning signs for Yunnan Energy International (1 can't be ignored!) that you need to take into consideration.

If you're unsure about the strength of Yunnan Energy International's 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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