Shandong Huifa Foodstuff Co.,Ltd. (SHSE:603536) shareholders have had their patience rewarded with a 98% share price jump in the last month. The annual gain comes to 114% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, there still wouldn't be many who think Shandong Huifa FoodstuffLtd's price-to-sales (or "P/S") ratio of 2.3x is worth a mention when the median P/S in China's Food industry is similar at about 2.1x. 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.

See our latest analysis for Shandong Huifa FoodstuffLtd

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

Shandong Huifa FoodstuffLtd has been doing a good job lately as it's been growing revenue at a solid pace. 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 that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Is There Some Revenue Growth Forecasted For Shandong Huifa FoodstuffLtd?

The only time you'd be comfortable seeing a P/S like Shandong Huifa FoodstuffLtd's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a worthy increase of 8.1%. The latest three year period has also seen a 28% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 17% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Shandong Huifa FoodstuffLtd's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What Does Shandong Huifa FoodstuffLtd's P/S Mean For Investors?

Shandong Huifa FoodstuffLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Shandong Huifa FoodstuffLtd'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. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Shandong Huifa FoodstuffLtd you should know about.

If you're unsure about the strength of Shandong Huifa FoodstuffLtd'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.