Zhejiang Huatong Meat Products Co., Ltd. (SZSE:002840) Screens Well But There Might Be A Catch

You may think that with a price-to-sales (or "P/S") ratio of 0.8x Zhejiang Huatong Meat Products Co., Ltd. (SZSE:002840) is a stock worth checking out, seeing as almost half of all the Food companies in China have P/S ratios greater than 1.8x and even P/S higher than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Zhejiang Huatong Meat Products

What Does Zhejiang Huatong Meat Products' P/S Mean For Shareholders?

Zhejiang Huatong Meat Products could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Zhejiang Huatong Meat Products will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

Zhejiang Huatong Meat Products' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 3.2%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 39% over the next year. With the industry only predicted to deliver 13%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Zhejiang Huatong Meat Products' P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What Does Zhejiang Huatong Meat Products' P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A look at Zhejiang Huatong Meat Products' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Zhejiang Huatong Meat Products with six simple checks.

If these risks are making you reconsider your opinion on Zhejiang Huatong Meat Products, 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.