Why Investors Shouldn't Be Surprised By Jiangxi Huangshanghuang Group Food Co., Ltd.'s (SZSE:002695) 33% Share Price Surge

Jiangxi Huangshanghuang Group Food Co., Ltd. (SZSE:002695) shares have continued their recent momentum with a 33% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 10% over that time.

Since its price has surged higher, you could be forgiven for thinking Jiangxi Huangshanghuang Group Food is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.1x, considering almost half the companies in China's Food industry have P/S ratios below 1.9x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Jiangxi Huangshanghuang Group Food

How Has Jiangxi Huangshanghuang Group Food Performed Recently?

Jiangxi Huangshanghuang Group Food hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Jiangxi Huangshanghuang Group Food will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Jiangxi Huangshanghuang Group Food?

In order to justify its P/S ratio, Jiangxi Huangshanghuang Group Food would need to produce impressive growth in excess of 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 6.5%. This means it has also seen a slide in revenue over the longer-term as revenue is down 26% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 50% as estimated by the only analyst watching the company. That's shaping up to be materially higher than the 16% growth forecast for the broader industry.

With this information, we can see why Jiangxi Huangshanghuang Group Food is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Jiangxi Huangshanghuang Group Food's P/S

The large bounce in Jiangxi Huangshanghuang Group Food's shares has lifted the company's P/S handsomely. 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.

As we suspected, our examination of Jiangxi Huangshanghuang Group Food's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Plus, you should also learn about these 2 warning signs we've spotted with Jiangxi Huangshanghuang Group Food (including 1 which is a bit concerning).

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.