What Ningxia Xiaoming Agriculture & Animal Husbandry Co.,Ltd's (SZSE:300967) 27% Share Price Gain Is Not Telling You

Ningxia Xiaoming Agriculture & Animal Husbandry Co.,Ltd (SZSE:300967) shares have continued their recent momentum with a 27% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 27% over that time.

Since its price has surged higher, given close to half the companies operating in China's Food industry have price-to-sales ratios (or "P/S") below 1.4x, you may consider Ningxia Xiaoming Agriculture & Animal HusbandryLtd as a stock to potentially avoid with its 2.8x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out 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. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

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.

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

The only time you'd be truly comfortable seeing a P/S as high as Ningxia Xiaoming Agriculture & Animal HusbandryLtd's is when the company's growth is on track to outshine 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%. Even so, admirably revenue has lifted 42% in aggregate from three years ago, notwithstanding the last 12 months. 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.

Comparing that to the industry, which is predicted to deliver 17% 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 concerning that Ningxia Xiaoming Agriculture & Animal HusbandryLtd is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Final Word

The large bounce in Ningxia Xiaoming Agriculture & Animal HusbandryLtd's shares has lifted the company's P/S handsomely. 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.

Our examination of Ningxia Xiaoming Agriculture & Animal HusbandryLtd revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Ningxia Xiaoming Agriculture & Animal HusbandryLtd you should know about.

If these risks are making you reconsider your opinion on Ningxia Xiaoming Agriculture & Animal HusbandryLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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