Jiangsu Lihua Animal Husbandry Co., Ltd.'s (SZSE:300761) Shares Lagging The Industry But So Is The Business

You may think that with a price-to-sales (or "P/S") ratio of 1x Jiangsu Lihua Animal Husbandry Co., Ltd. (SZSE:300761) is a stock worth checking out, seeing as almost half of all the Food companies in China have P/S ratios greater than 1.6x and even P/S higher than 4x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Jiangsu Lihua Animal Husbandry

How Has Jiangsu Lihua Animal Husbandry Performed Recently?

Jiangsu Lihua Animal Husbandry certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

How Is Jiangsu Lihua Animal Husbandry's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Jiangsu Lihua Animal Husbandry's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 17%. The strong recent performance means it was also able to grow revenue by 82% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 7.8% over the next year. Meanwhile, the rest of the industry is forecast to expand by 16%, which is noticeably more attractive.

With this information, we can see why Jiangsu Lihua Animal Husbandry is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Jiangsu Lihua Animal Husbandry's P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Jiangsu Lihua Animal Husbandry maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Jiangsu Lihua Animal Husbandry that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.