Shandong Fengxiang Co., Ltd (HKG:9977) shareholders have had their patience rewarded with a 30% share price jump in the last month. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Shandong Fengxiang's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Food industry in Hong Kong is also close to 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Shandong Fengxiang's P/S Mean For Shareholders?

Shandong Fengxiang has been doing a decent job lately as it's been growing revenue at a reasonable pace. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. 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 Shandong Fengxiang?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Shandong Fengxiang's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 5.4%. The latest three year period has also seen an excellent 35% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 5.9%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that Shandong Fengxiang is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Shandong Fengxiang's P/S?

Its shares have lifted substantially and now Shandong Fengxiang's P/S is back within range of the industry median. 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.

To our surprise, Shandong Fengxiang revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Shandong Fengxiang (of which 1 is potentially serious!) you should know about.

If you're unsure about the strength of Shandong Fengxiang'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.