Revenues Working Against Xiwang Foodstuffs Co.,Ltd.'s (SZSE:000639) Share Price Following 27% Dive

Xiwang Foodstuffs Co.,Ltd. (SZSE:000639) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 47% share price drop.

In spite of the heavy fall in price, it would still be understandable if you think Xiwang FoodstuffsLtd is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.5x, considering almost half the companies in China's Food industry have P/S ratios above 1.4x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Xiwang FoodstuffsLtd

How Has Xiwang FoodstuffsLtd Performed Recently?

For example, consider that Xiwang FoodstuffsLtd's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Xiwang FoodstuffsLtd will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Xiwang FoodstuffsLtd will help you shine a light on its historical performance.

How Is Xiwang FoodstuffsLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Xiwang FoodstuffsLtd's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 13% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 18% shows it's an unpleasant look.

With this information, we are not surprised that Xiwang FoodstuffsLtd is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From Xiwang FoodstuffsLtd's P/S?

Xiwang FoodstuffsLtd's P/S has taken a dip along with its share price. 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.

It's no surprise that Xiwang FoodstuffsLtd maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for Xiwang FoodstuffsLtd (1 shouldn't be ignored!) that you need to take into consideration.

If you're unsure about the strength of Xiwang FoodstuffsLtd'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.

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