There's No Escaping Zhanjiang Guolian Aquatic Products Co., Ltd.'s (SZSE:300094) Muted Revenues Despite A 28% Share Price Rise

The Zhanjiang Guolian Aquatic Products Co., Ltd. (SZSE:300094) share price has done very well over the last month, posting an excellent gain of 28%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 38% over that time.

Even after such a large jump in price, it would still be understandable if you think Zhanjiang Guolian Aquatic Products is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.9x, considering almost half the companies in China's Food industry have P/S ratios above 1.4x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Zhanjiang Guolian Aquatic Products

How Has Zhanjiang Guolian Aquatic Products Performed Recently?

For example, consider that Zhanjiang Guolian Aquatic Products' financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Zhanjiang Guolian Aquatic Products will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

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 Zhanjiang Guolian Aquatic Products' earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Zhanjiang Guolian Aquatic Products?

The only time you'd be truly comfortable seeing a P/S as low as Zhanjiang Guolian Aquatic Products' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 22% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 5.7% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 16% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Zhanjiang Guolian Aquatic Products is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

Zhanjiang Guolian Aquatic Products' stock price has surged recently, but its but its P/S still remains modest. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It's no surprise that Zhanjiang Guolian Aquatic Products maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Zhanjiang Guolian Aquatic Products you should be aware of, and 1 of them can't be ignored.

If these risks are making you reconsider your opinion on Zhanjiang Guolian Aquatic Products, explore our interactive list of high quality stocks to get an idea of what else is out there.

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

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.