Benign Growth For Tech-Bank Food Co., Ltd. (SZSE:002124) Underpins Its Share Price

When you see that almost half of the companies in the Food industry in China have price-to-sales ratios (or "P/S") above 1.3x, Tech-Bank Food Co., Ltd. (SZSE:002124) looks to be giving off some buy signals with its 0.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Tech-Bank Food

How Tech-Bank Food Has Been Performing

There hasn't been much to differentiate Tech-Bank Food's and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

Tech-Bank Food'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, the company posted a result that saw barely any deviation from a year ago. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 18% overall from three years ago. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 24% as estimated by the dual analysts watching the company. That's not great when the rest of the industry is expected to grow by 16%.

With this in consideration, we find it intriguing that Tech-Bank Food's P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Tech-Bank Food's P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Tech-Bank Food's P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Tech-Bank Food's poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 3 warning signs for Tech-Bank Food (1 makes us a bit uncomfortable!) that you should be aware of.

If these risks are making you reconsider your opinion on Tech-Bank Food, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.