With a price-to-sales (or "P/S") ratio of 0.8x Guangdong Yuehai Feeds Group Co.,Ltd. (SZSE:001313) may be sending bullish signals at the moment, given that almost half of all the Food companies in China have P/S ratios greater than 1.6x and even P/S higher than 4x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Guangdong Yuehai Feeds GroupLtd Has Been Performing

While the industry has experienced revenue growth lately, Guangdong Yuehai Feeds GroupLtd's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

How Is Guangdong Yuehai Feeds GroupLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Guangdong Yuehai Feeds GroupLtd's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 4.3% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 25% 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.

Looking ahead now, revenue is anticipated to climb by 12% during the coming year according to the lone analyst following the company. With the industry predicted to deliver 18% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Guangdong Yuehai Feeds GroupLtd is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Guangdong Yuehai Feeds GroupLtd's 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.

We've established that Guangdong Yuehai Feeds GroupLtd maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

You should always think about risks. Case in point, we've spotted 2 warning signs for Guangdong Yuehai Feeds GroupLtd you should be aware of.

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.

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