New Hope Liuhe Co.,Ltd.'s (SZSE:000876) Low P/S No Reason For Excitement

You may think that with a price-to-sales (or "P/S") ratio of 0.3x New Hope Liuhe Co.,Ltd. (SZSE:000876) is a stock worth checking out, seeing as almost half of all the Food companies in China have P/S ratios greater than 1.8x and even P/S higher than 4x aren't out of the ordinary. 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 New Hope LiuheLtd

What Does New Hope LiuheLtd's Recent Performance Look Like?

Recent revenue growth for New Hope LiuheLtd has been in line with the industry. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. Those who are bullish on New Hope LiuheLtd will be hoping that this isn't the case.

Keen to find out how analysts think New Hope LiuheLtd'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 New Hope LiuheLtd?

There's an inherent assumption that a company should underperform the industry for P/S ratios like New Hope LiuheLtd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 12%. Pleasingly, revenue has also lifted 48% 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.

Looking ahead now, revenue is anticipated to climb by 3.4% during the coming year according to the five analysts following the company. That's shaping up to be materially lower than the 16% growth forecast for the broader industry.

With this information, we can see why New Hope LiuheLtd is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does New Hope LiuheLtd's P/S Mean For Investors?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of New Hope LiuheLtd's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for New Hope LiuheLtd that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.