Jiangsu Hengshun Vinegar-Industry Co.,Ltd's (SHSE:600305) Popularity With Investors Is Under Threat From Overpricing

When you see that almost half of the companies in the Food industry in China have price-to-sales ratios (or "P/S") below 1.7x, Jiangsu Hengshun Vinegar-Industry Co.,Ltd (SHSE:600305) looks to be giving off strong sell signals with its 4.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Jiangsu Hengshun Vinegar-IndustryLtd

How Has Jiangsu Hengshun Vinegar-IndustryLtd Performed Recently?

Jiangsu Hengshun Vinegar-IndustryLtd 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. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Jiangsu Hengshun Vinegar-IndustryLtd will help you uncover what's on the horizon.

How Is Jiangsu Hengshun Vinegar-IndustryLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Jiangsu Hengshun Vinegar-IndustryLtd's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a frustrating 4.6% decrease to the company's top line. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 12% as estimated by the eight analysts watching the company. That's shaping up to be materially lower than the 16% growth forecast for the broader industry.

With this in consideration, we believe it doesn't make sense that Jiangsu Hengshun Vinegar-IndustryLtd's P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What Does Jiangsu Hengshun Vinegar-IndustryLtd's P/S Mean For Investors?

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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Jiangsu Hengshun Vinegar-IndustryLtd, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Jiangsu Hengshun Vinegar-IndustryLtd (at least 1 which is significant), and understanding them should be part of your investment process.

If you're unsure about the strength of Jiangsu Hengshun Vinegar-IndustryLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.