Market Cool On Shandong Minhe Animal Husbandry Co., Ltd.'s (SZSE:002234) Revenues

With a median price-to-sales (or "P/S") ratio of close to 1.7x in the Food industry in China, you could be forgiven for feeling indifferent about Shandong Minhe Animal Husbandry Co., Ltd.'s (SZSE:002234) P/S ratio of 1.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Shandong Minhe Animal Husbandry

What Does Shandong Minhe Animal Husbandry's P/S Mean For Shareholders?

Shandong Minhe Animal Husbandry could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Want the full picture on analyst estimates for the company? Then our free report on Shandong Minhe Animal Husbandry will help you uncover what's on the horizon.

How Is Shandong Minhe Animal Husbandry's Revenue Growth Trending?

In order to justify its P/S ratio, Shandong Minhe Animal Husbandry would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.2%. Regardless, revenue has managed to lift by a handy 9.5% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 38% over the next year. That's shaping up to be materially higher than the 16% growth forecast for the broader industry.

With this information, we find it interesting that Shandong Minhe Animal Husbandry is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Shandong Minhe Animal Husbandry'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.

Looking at Shandong Minhe Animal Husbandry's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Shandong Minhe Animal Husbandry with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Shandong Minhe Animal Husbandry'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.