Lanzhou Zhuangyuan Pasture Co., Ltd. (SZSE:002910) Shares May Have Slumped 25% But Getting In Cheap Is Still Unlikely

Lanzhou Zhuangyuan Pasture Co., Ltd. (SZSE:002910) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 38% in that time.

Even after such a large drop in price, it's still not a stretch to say that Lanzhou Zhuangyuan Pasture's price-to-sales (or "P/S") ratio of 1.5x right now seems quite "middle-of-the-road" compared to the Food industry in China, where the median P/S ratio is around 1.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Lanzhou Zhuangyuan Pasture

What Does Lanzhou Zhuangyuan Pasture's P/S Mean For Shareholders?

For example, consider that Lanzhou Zhuangyuan Pasture's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Lanzhou Zhuangyuan Pasture, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Lanzhou Zhuangyuan Pasture's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Lanzhou Zhuangyuan Pasture's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.9%. As a result, revenue from three years ago have also fallen 6.2% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 15% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we find it worrying that Lanzhou Zhuangyuan Pasture's P/S exceeds that of its industry peers. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On Lanzhou Zhuangyuan Pasture's P/S

Lanzhou Zhuangyuan Pasture's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look at Lanzhou Zhuangyuan Pasture revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Lanzhou Zhuangyuan Pasture that you should be aware of.

If you're unsure about the strength of Lanzhou Zhuangyuan Pasture'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.