After Leaping 39% Dongrui Food Group Co., Ltd. (SZSE:001201) Shares Are Not Flying Under The Radar

Despite an already strong run, Dongrui Food Group Co., Ltd. (SZSE:001201) shares have been powering on, with a gain of 39% in the last thirty days. Unfortunately, despite the strong performance over the last month, the full year gain of 5.1% isn't as attractive.

Following the firm bounce in price, given around half the companies in China's Food industry have price-to-sales ratios (or "P/S") below 1.7x, you may consider Dongrui Food Group as a stock to avoid entirely with its 6.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Dongrui Food Group

What Does Dongrui Food Group's Recent Performance Look Like?

Dongrui Food Group 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.. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Dongrui Food Group's Revenue Growth Trending?

Dongrui Food Group's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much 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 25%. The last three years don't look nice either as the company has shrunk revenue by 29% in aggregate. 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 168% during the coming year according to the dual analysts following the company. That's shaping up to be materially higher than the 10% growth forecast for the broader industry.

In light of this, it's understandable that Dongrui Food Group's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Dongrui Food Group's P/S has grown nicely over the last month thanks to a handy boost in the share price. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Dongrui Food Group 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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Dongrui Food Group you should know about.

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.