Some Shareholders Feeling Restless Over Xinjiang Tianrun Dairy Co., Ltd.'s (SHSE:600419) P/S Ratio

There wouldn't be many who think Xinjiang Tianrun Dairy Co., Ltd.'s (SHSE:600419) price-to-sales (or "P/S") ratio of 0.9x is worth a mention when the median P/S for the Food industry in China is similar at about 1.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Xinjiang Tianrun Dairy

How Has Xinjiang Tianrun Dairy Performed Recently?

With revenue growth that's superior to most other companies of late, Xinjiang Tianrun Dairy has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on analyst estimates for the company? Then our free report on Xinjiang Tianrun Dairy will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

Xinjiang Tianrun Dairy's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 7.9%. Pleasingly, revenue has also lifted 43% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 11% over the next year. That's shaping up to be materially lower than the 16% growth forecast for the broader industry.

In light of this, it's curious that Xinjiang Tianrun Dairy's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

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.

When you consider that Xinjiang Tianrun Dairy's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Before you take the next step, you should know about the 1 warning sign for Xinjiang Tianrun Dairy that we have uncovered.

If you're unsure about the strength of Xinjiang Tianrun Dairy'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.