When you see that almost half of the companies in the Consumer Retailing industry in China have price-to-sales ratios (or "P/S") above 1x, Yixintang Pharmaceutical Group Co., Ltd. (SZSE:002727) looks to be giving off some buy signals with its 0.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

How Yixintang Pharmaceutical Group Has Been Performing

Yixintang Pharmaceutical Group could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

The only time you'd be truly comfortable seeing a P/S as low as Yixintang Pharmaceutical Group's is when the company's growth is on track to lag the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. However, a few strong years before that means that it was still able to grow revenue by an impressive 30% in total over the last three years. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 13% each year over the next three years. That's shaping up to be materially higher than the 7.0% per annum growth forecast for the broader industry.

In light of this, it's peculiar that Yixintang Pharmaceutical Group's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What Does Yixintang Pharmaceutical Group's P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Yixintang Pharmaceutical Group's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

You should always think about risks. Case in point, we've spotted 3 warning signs for Yixintang Pharmaceutical Group you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.