Improved Revenues Required Before Guangxi Rural Investment Sugar Industry Group Co., Ltd (SZSE:000911) Stock's 28% Jump Looks Justified

Guangxi Rural Investment Sugar Industry Group Co., Ltd (SZSE:000911) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

Although its price has surged higher, Guangxi Rural Investment Sugar Industry Group may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1x, considering almost half of all companies in the Food industry 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.

View our latest analysis for Guangxi Rural Investment Sugar Industry Group

What Does Guangxi Rural Investment Sugar Industry Group's Recent Performance Look Like?

The revenue growth achieved at Guangxi Rural Investment Sugar Industry Group over the last year would be more than acceptable for most companies. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. 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 out of favour.

Although there are no analyst estimates available for Guangxi Rural Investment Sugar Industry Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Guangxi Rural Investment Sugar Industry Group's Revenue Growth Trending?

In order to justify its P/S ratio, Guangxi Rural Investment Sugar Industry Group would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. However, this wasn't enough as the latest three year period has seen the company endure a nasty 5.1% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 16% shows it's an unpleasant look.

With this information, we are not surprised that Guangxi Rural Investment Sugar Industry Group 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 Does Guangxi Rural Investment Sugar Industry Group's P/S Mean For Investors?

Despite Guangxi Rural Investment Sugar Industry Group's share price climbing recently, its P/S still lags most other companies. 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.

As we suspected, our examination of Guangxi Rural Investment Sugar Industry Group revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. 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's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Guangxi Rural Investment Sugar Industry Group (at least 1 which is concerning), and understanding them should be part of your investment process.

If you're unsure about the strength of Guangxi Rural Investment Sugar Industry Group'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.