Shanghai Milkground Food Tech Co., Ltd (SHSE:600882) Not Lagging Industry On Growth Or Pricing

When close to half the companies in the Food industry in China have price-to-sales ratios (or "P/S") below 1.9x, you may consider Shanghai Milkground Food Tech Co., Ltd (SHSE:600882) as a stock to potentially avoid with its 2.6x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Shanghai Milkground Food Tech

What Does Shanghai Milkground Food Tech's Recent Performance Look Like?

Shanghai Milkground Food Tech could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai Milkground Food Tech.

Do Revenue Forecasts Match The High P/S Ratio?

Shanghai Milkground Food Tech's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 26%. As a result, revenue from three years ago have also fallen 11% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 39% during the coming year according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 12%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Shanghai Milkground Food Tech's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Shanghai Milkground Food Tech maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Food industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Shanghai Milkground Food Tech with six simple checks will allow you to discover any risks that could be an issue.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.