Investors Appear Satisfied With Ningxia Xiaoming Agriculture & Animal Husbandry Co.,Ltd's (SZSE:300967) Prospects As Shares Rocket 30%

The Ningxia Xiaoming Agriculture & Animal Husbandry Co.,Ltd (SZSE:300967) share price has done very well over the last month, posting an excellent gain of 30%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 31% in the last twelve months.

Since its price has surged higher, you could be forgiven for thinking Ningxia Xiaoming Agriculture & Animal HusbandryLtd is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.6x, considering almost half the companies in China's Food industry have P/S ratios below 1.7x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Ningxia Xiaoming Agriculture & Animal HusbandryLtd

What Does Ningxia Xiaoming Agriculture & Animal HusbandryLtd's Recent Performance Look Like?

For instance, Ningxia Xiaoming Agriculture & Animal HusbandryLtd's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. If not, then existing shareholders may be quite nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Ningxia Xiaoming Agriculture & Animal HusbandryLtd will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Ningxia Xiaoming Agriculture & Animal HusbandryLtd?

In order to justify its P/S ratio, Ningxia Xiaoming Agriculture & Animal HusbandryLtd would need to produce impressive growth in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.8%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 42% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 10% shows it's noticeably more attractive.

With this information, we can see why Ningxia Xiaoming Agriculture & Animal HusbandryLtd is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Ningxia Xiaoming Agriculture & Animal HusbandryLtd's P/S

The large bounce in Ningxia Xiaoming Agriculture & Animal HusbandryLtd's shares has lifted the company's P/S handsomely. 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 Ningxia Xiaoming Agriculture & Animal HusbandryLtd can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Ningxia Xiaoming Agriculture & Animal HusbandryLtd (at least 2 which are significant), and understanding them should be part of your investment process.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.