Ningxia Xiaoming Agriculture & Animal Husbandry Co.,Ltd's (SZSE:300967) Popularity With Investors Under Threat As Stock Sinks 27%

To the annoyance of some shareholders, Ningxia Xiaoming Agriculture & Animal Husbandry Co.,Ltd (SZSE:300967) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 48% in that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Ningxia Xiaoming Agriculture & Animal HusbandryLtd's P/S ratio of 2.1x, since the median price-to-sales (or "P/S") ratio for the Food industry in China is also close to 1.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Ningxia Xiaoming Agriculture & Animal HusbandryLtd

How Ningxia Xiaoming Agriculture & Animal HusbandryLtd Has Been Performing

The revenue growth achieved at Ningxia Xiaoming Agriculture & Animal HusbandryLtd over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. 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 not quite in favour.

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 Ningxia Xiaoming Agriculture & Animal HusbandryLtd's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like Ningxia Xiaoming Agriculture & Animal HusbandryLtd's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a worthy increase of 12%. Pleasingly, revenue has also lifted 46% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 16% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it interesting that Ningxia Xiaoming Agriculture & Animal HusbandryLtd is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

With its share price dropping off a cliff, the P/S for Ningxia Xiaoming Agriculture & Animal HusbandryLtd looks to be in line with the rest of the Food industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Ningxia Xiaoming Agriculture & Animal HusbandryLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Ningxia Xiaoming Agriculture & Animal HusbandryLtd that you should be aware of.

If you're unsure about the strength of Ningxia Xiaoming Agriculture & Animal HusbandryLtd'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.