Risks To Shareholder Returns Are Elevated At These Prices For Xinjiang Sayram Modern Agriculture Co., Ltd (SHSE:600540)

There wouldn't be many who think Xinjiang Sayram Modern Agriculture Co., Ltd's (SHSE:600540) price-to-sales (or "P/S") ratio of 1.7x is worth a mention when the median P/S for the Food industry in China is very similar. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Xinjiang Sayram Modern Agriculture

What Does Xinjiang Sayram Modern Agriculture's Recent Performance Look Like?

Recent times have been quite advantageous for Xinjiang Sayram Modern Agriculture as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. 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.

Although there are no analyst estimates available for Xinjiang Sayram Modern Agriculture, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Xinjiang Sayram Modern Agriculture's Revenue Growth Trending?

Xinjiang Sayram Modern Agriculture'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.

Retrospectively, the last year delivered an exceptional 50% gain to the company's top line. As a result, it also grew revenue by 6.3% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 15% shows it's noticeably less attractive.

With this information, we find it interesting that Xinjiang Sayram Modern Agriculture is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What We Can Learn From Xinjiang Sayram Modern Agriculture'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.

Our examination of Xinjiang Sayram Modern Agriculture revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Xinjiang Sayram Modern Agriculture you should know about.

If these risks are making you reconsider your opinion on Xinjiang Sayram Modern Agriculture, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.