To the annoyance of some shareholders, Jiangsu Nonghua Intelligent Agriculture Technology Co.ltd (SZSE:000816) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 46% in that time.

In spite of the heavy fall in price, it's still not a stretch to say that Jiangsu Nonghua Intelligent Agriculture Technologyltd's price-to-sales (or "P/S") ratio of 2.1x right now seems quite "middle-of-the-road" compared to the Machinery industry in China, where the median P/S ratio is around 2.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Jiangsu Nonghua Intelligent Agriculture Technologyltd Has Been Performing

The revenue growth achieved at Jiangsu Nonghua Intelligent Agriculture Technologyltd over the last year would be more than acceptable for most companies. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. 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.

Is There Some Revenue Growth Forecasted For Jiangsu Nonghua Intelligent Agriculture Technologyltd?

In order to justify its P/S ratio, Jiangsu Nonghua Intelligent Agriculture Technologyltd would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 10% last year. Still, lamentably revenue has fallen 39% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 24% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Jiangsu Nonghua Intelligent Agriculture Technologyltd's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Final Word

Following Jiangsu Nonghua Intelligent Agriculture Technologyltd's share price tumble, its P/S is just clinging on to the industry median P/S. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look at Jiangsu Nonghua Intelligent Agriculture Technologyltd revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Jiangsu Nonghua Intelligent Agriculture Technologyltd with six simple checks.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

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