The HaiXin Foods Co.,Ltd (SZSE:002702) share price has done very well over the last month, posting an excellent gain of 28%. Looking further back, the 12% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about HaiXin FoodsLtd's P/S ratio of 2.3x, since the median price-to-sales (or "P/S") ratio for the Food industry in China is also close to 2.1x. 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.

View our latest analysis for HaiXin FoodsLtd

How Has HaiXin FoodsLtd Performed Recently?

HaiXin FoodsLtd has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. 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 HaiXin FoodsLtd?

In order to justify its P/S ratio, HaiXin FoodsLtd 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 6.3% last year. Revenue has also lifted 5.5% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 17% shows it's noticeably less attractive.

With this information, we find it interesting that HaiXin FoodsLtd is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. 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 HaiXin FoodsLtd's P/S?

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

Our examination of HaiXin FoodsLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

And what about other risks? Every company has them, and we've spotted 5 warning signs for HaiXin FoodsLtd (of which 2 are potentially serious!) you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.