Chaoda Modern Agriculture (Holdings) Limited (HKG:682) shareholders have had their patience rewarded with a 79% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 26% in the last twelve months.

In spite of the firm bounce in price, it's still not a stretch to say that Chaoda Modern Agriculture (Holdings)'s price-to-sales (or "P/S") ratio of 0.9x right now seems quite "middle-of-the-road" compared to the Food industry in Hong Kong, where the median P/S ratio is around 0.5x. 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 Chaoda Modern Agriculture (Holdings)'s Recent Performance Look Like?

Chaoda Modern Agriculture (Holdings) has been doing a decent job lately as it's been growing revenue at a reasonable pace. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.

Is There Some Revenue Growth Forecasted For Chaoda Modern Agriculture (Holdings)?

In order to justify its P/S ratio, Chaoda Modern Agriculture (Holdings) would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 5.1%. The latest three year period has also seen a 21% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 6.6% shows it's about the same on an annualised basis.

With this in consideration, it's clear to see why Chaoda Modern Agriculture (Holdings)'s P/S matches up closely to its industry peers. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Final Word

Chaoda Modern Agriculture (Holdings) appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in 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.

As we've seen, Chaoda Modern Agriculture (Holdings)'s three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Chaoda Modern Agriculture (Holdings) (of which 1 shouldn't be ignored!) you should know about.

If you're unsure about the strength of Chaoda Modern Agriculture (Holdings)'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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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.