Investors Give Henan Huaying Agricultural Development Co., Ltd. (SZSE:002321) Shares A 26% Hiding

The Henan Huaying Agricultural Development Co., Ltd. (SZSE:002321) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. Longer-term shareholders would now have taken a real hit with the stock declining 7.2% in the last year.

After such a large drop in price, Henan Huaying Agricultural Development's price-to-sales (or "P/S") ratio of 1x might make it look like a buy right now compared to the Food industry in China, where around half of the companies have P/S ratios above 1.7x and even P/S above 4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Henan Huaying Agricultural Development

How Has Henan Huaying Agricultural Development Performed Recently?

With revenue growth that's exceedingly strong of late, Henan Huaying Agricultural Development has been doing very well. Perhaps the market is expecting future revenue performance to dwindle, 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Henan Huaying Agricultural Development's earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Henan Huaying Agricultural Development's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company grew revenue by an impressive 45% last year. The latest three year period has also seen an excellent 51% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 14% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this information, we find it odd that Henan Huaying Agricultural Development is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can maintain recent growth rates.

What We Can Learn From Henan Huaying Agricultural Development's P/S?

The southerly movements of Henan Huaying Agricultural Development's shares means its P/S is now sitting at a pretty low level. 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.

The fact that Henan Huaying Agricultural Development currently trades at a low P/S relative to the industry is unexpected considering its recent three-year growth is in line with the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's performance. revenue trends suggest that the risk of a price decline is low, investors appear to perceive a possibility of revenue volatility in the future.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Henan Huaying Agricultural Development you should know about.

If these risks are making you reconsider your opinion on Henan Huaying Agricultural Development, 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.