Shanghai Yongguan Adhesive Products Corp., Ltd. (SHSE:603681) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 56% share price decline.

In spite of the heavy fall in price, Shanghai Yongguan Adhesive Products may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.4x, considering almost half of all companies in the Chemicals industry in China have P/S ratios greater than 1.9x and even P/S higher than 4x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Has Shanghai Yongguan Adhesive Products Performed Recently?

Recent times have been advantageous for Shanghai Yongguan Adhesive Products as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

In order to justify its P/S ratio, Shanghai Yongguan Adhesive Products would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 7.9% gain to the company's revenues. Pleasingly, revenue has also lifted 124% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 7.9% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 26%, which is noticeably more attractive.

In light of this, it's understandable that Shanghai Yongguan Adhesive Products' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Shanghai Yongguan Adhesive Products' P/S?

Shanghai Yongguan Adhesive Products' P/S has taken a dip along with its share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As expected, our analysis of Shanghai Yongguan Adhesive Products' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Shanghai Yongguan Adhesive Products (2 are concerning!) that you should be aware of before investing here.

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

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.