When close to half the companies in the Food industry in Hong Kong have price-to-sales ratios (or "P/S") below 0.6x, you may consider Dekon Food and Agriculture Group (HKG:2419) as a stock to potentially avoid with its 1.1x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

How Has Dekon Food and Agriculture Group Performed Recently?

Recent times have been advantageous for Dekon Food and Agriculture Group as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

Is There Enough Revenue Growth Forecasted For Dekon Food and Agriculture Group?

Dekon Food and Agriculture Group's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered a decent 7.4% gain to the company's revenues. The latest three year period has also seen an excellent 98% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 56% during the coming year according to the only analyst following the company. With the industry only predicted to deliver 11%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Dekon Food and Agriculture Group's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Dekon Food and Agriculture Group's P/S?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look into Dekon Food and Agriculture Group shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Dekon Food and Agriculture Group with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Dekon Food and Agriculture Group'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.