Fewer Investors Than Expected Jumping On Hunan New Wellful Co.,Ltd. (SHSE:600975)

You may think that with a price-to-sales (or "P/S") ratio of 1.1x Hunan New Wellful Co.,Ltd. (SHSE:600975) is a stock worth checking out, seeing as almost half of all the Food companies in China have P/S ratios greater than 1.7x and even P/S higher than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Hunan New WellfulLtd

How Hunan New WellfulLtd Has Been Performing

With revenue growth that's superior to most other companies of late, Hunan New WellfulLtd has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think Hunan New WellfulLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For Hunan New WellfulLtd?

Hunan New WellfulLtd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 24%. Pleasingly, revenue has also lifted 199% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 61% over the next year. That's shaping up to be materially higher than the 15% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Hunan New WellfulLtd's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

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.

Hunan New WellfulLtd's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Hunan New WellfulLtd with six simple checks on some of these key factors.

If you're unsure about the strength of Hunan New WellfulLtd'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.