The Market Lifts Yunnan Energy International Co. Limited (HKG:1298) Shares 76% But It Can Do More

The Yunnan Energy International Co. Limited (HKG:1298) share price has done very well over the last month, posting an excellent gain of 76%. Looking back a bit further, it's encouraging to see the stock is up 26% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Yunnan Energy International's price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the Healthcare industry in Hong Kong, where the median P/S ratio is around 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for Yunnan Energy International

What Does Yunnan Energy International's Recent Performance Look Like?

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?

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

Taking a look back first, we see that the company grew revenue by an impressive 69% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 8.1% shows it's noticeably more attractive.

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.

The Bottom Line On Yunnan Energy International's P/S

Yunnan Energy International's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

We've established that Yunnan Energy International currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. 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.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Yunnan Energy International (3 shouldn't be ignored!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Yunnan Energy International, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.