Slammed 26% Hunan Xiangjia Animal Husbandry Co.,Ltd (SZSE:002982) Screens Well Here But There Might Be A Catch

Hunan Xiangjia Animal Husbandry Co.,Ltd (SZSE:002982) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 39% share price drop.

Following the heavy fall in price, when close to half the companies operating in China's Food industry have price-to-sales ratios (or "P/S") above 1.5x, you may consider Hunan Xiangjia Animal HusbandryLtd as an enticing stock to check out with its 0.6x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Hunan Xiangjia Animal HusbandryLtd

How Hunan Xiangjia Animal HusbandryLtd Has Been Performing

Hunan Xiangjia Animal HusbandryLtd could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Hunan Xiangjia Animal HusbandryLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Hunan Xiangjia Animal HusbandryLtd'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 1.6%. Still, the latest three year period has seen an excellent 63% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 20% over the next year. With the industry only predicted to deliver 18%, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Hunan Xiangjia Animal HusbandryLtd's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

The southerly movements of Hunan Xiangjia Animal HusbandryLtd's shares means its P/S is now sitting at a pretty low level. 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.

A look at Hunan Xiangjia Animal HusbandryLtd's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

You need to take note of risks, for example - Hunan Xiangjia Animal HusbandryLtd has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com