With a price-to-sales (or "P/S") ratio of 0.9x 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 1.7x 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.

What Does Guangdong Yuehai Feeds GroupLtd's P/S Mean For Shareholders?

Guangdong Yuehai Feeds GroupLtd could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Guangdong Yuehai Feeds GroupLtd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 11% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 6.3% in total. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Turning to the outlook, the next year should generate growth of 21% as estimated by the only analyst watching the company. That's shaping up to be materially higher than the 16% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Guangdong Yuehai Feeds GroupLtd's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the 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. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Guangdong Yuehai Feeds GroupLtd you should be aware of.

If you're unsure about the strength of Guangdong Yuehai Feeds GroupLtd'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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