The SDIC Zhonglu Fruit Juice Co.,Ltd. (SHSE:600962) share price has fared very poorly over the last month, falling by a substantial 28%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 41% share price drop.

In spite of the heavy fall in price, it's still not a stretch to say that SDIC Zhonglu Fruit JuiceLtd's price-to-sales (or "P/S") ratio of 1.4x right now seems quite "middle-of-the-road" compared to the Food industry in China, where the median P/S ratio is around 1.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

What Does SDIC Zhonglu Fruit JuiceLtd's P/S Mean For Shareholders?

For instance, SDIC Zhonglu Fruit JuiceLtd's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like SDIC Zhonglu Fruit JuiceLtd's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 8.1% decrease to the company's top line. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the industry, which is expected to grow by 16% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that SDIC Zhonglu Fruit JuiceLtd's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From SDIC Zhonglu Fruit JuiceLtd's P/S?

Following SDIC Zhonglu Fruit JuiceLtd's share price tumble, its P/S is just clinging on to the industry median 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.

We've established that SDIC Zhonglu Fruit JuiceLtd's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

You always need to take note of risks, for example - SDIC Zhonglu Fruit JuiceLtd has 2 warning signs we think 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.