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There's Reason For Concern Over Zhejiang Youpon Integrated Ceiling Co.,Ltd.'s (SZSE:002718) Massive 26% Price Jump

Simply Wall St ·  Nov 26 06:19

Zhejiang Youpon Integrated Ceiling Co.,Ltd. (SZSE:002718) shares have continued their recent momentum with a 26% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 16% over that time.

In spite of the firm bounce in price, there still wouldn't be many who think Zhejiang Youpon Integrated CeilingLtd's price-to-sales (or "P/S") ratio of 2.4x is worth a mention when the median P/S in China's Consumer Durables industry is similar at about 2x. 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.

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SZSE:002718 Price to Sales Ratio vs Industry November 25th 2024

How Zhejiang Youpon Integrated CeilingLtd Has Been Performing

As an illustration, revenue has deteriorated at Zhejiang Youpon Integrated CeilingLtd over the last year, which is not ideal at all. 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 you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Zhejiang Youpon Integrated CeilingLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Zhejiang Youpon Integrated CeilingLtd's is when the company's growth is tracking the industry closely.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 20%. As a result, revenue from three years ago have also fallen 21% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 10% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Zhejiang Youpon Integrated CeilingLtd is trading at a fairly similar P/S compared to the industry. 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. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Zhejiang Youpon Integrated CeilingLtd's P/S Mean For Investors?

Zhejiang Youpon Integrated CeilingLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We find it unexpected that Zhejiang Youpon Integrated CeilingLtd trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Zhejiang Youpon Integrated CeilingLtd that you should be aware of.

If you're unsure about the strength of Zhejiang Youpon Integrated CeilingLtd'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.

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