Guangdong Yuehai Feeds Group Co.,Ltd. (SZSE:001313) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 32% share price drop.

In spite of the heavy fall in price, considering around half the companies operating in China's Food industry have price-to-sales ratios (or "P/S") above 1.6x, you may still consider Guangdong Yuehai Feeds GroupLtd as an solid investment opportunity with its 0.7x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Guangdong Yuehai Feeds GroupLtd's Recent Performance Look Like?

Guangdong Yuehai Feeds GroupLtd hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Is There Any Revenue Growth Forecasted For Guangdong Yuehai Feeds GroupLtd?

In order to justify its P/S ratio, Guangdong Yuehai Feeds GroupLtd would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 3.0% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 17% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 43% as estimated by the sole analyst watching the company. That's shaping up to be materially higher than the 15% growth forecast for the broader industry.

In light of this, it's peculiar that Guangdong Yuehai Feeds GroupLtd's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Guangdong Yuehai Feeds GroupLtd's P/S?

Guangdong Yuehai Feeds GroupLtd's P/S has taken a dip along with its share price. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A look at Guangdong Yuehai Feeds GroupLtd's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 2 warning signs for Guangdong Yuehai Feeds GroupLtd that you need to take into consideration.

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.