Foodco National Foodstuff PJSC (ADX:FNF) Stocks Pounded By 25% But Not Lagging Industry On Growth Or Pricing

Foodco National Foodstuff PJSC (ADX:FNF) shares have retraced a considerable 25% in the last month, reversing a fair amount of their solid recent performance. Longer-term shareholders would now have taken a real hit with the stock declining 8.1% in the last year.

Although its price has dipped substantially, when almost half of the companies in the United Arab Emirates' Consumer Retailing industry have price-to-sales ratios (or "P/S") below 1.7x, you may still consider Foodco National Foodstuff PJSC as a stock not worth researching with its 5.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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See our latest analysis for Foodco National Foodstuff PJSC

What Does Foodco National Foodstuff PJSC's P/S Mean For Shareholders?

Foodco National Foodstuff PJSC certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

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Is There Enough Revenue Growth Forecasted For Foodco National Foodstuff PJSC?

In order to justify its P/S ratio, Foodco National Foodstuff PJSC would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 41%. The strong recent performance means it was also able to grow revenue by 68% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 10% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in consideration, it's not hard to understand why Foodco National Foodstuff PJSC's P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What We Can Learn From Foodco National Foodstuff PJSC's P/S?

Even after such a strong price drop, Foodco National Foodstuff PJSC's P/S still exceeds the industry median significantly. 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.

It's no surprise that Foodco National Foodstuff PJSC can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 3 warning signs for Foodco National Foodstuff PJSC (2 don't sit too well with us!) that we have uncovered.

If you're unsure about the strength of Foodco National Foodstuff PJSC'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.