There's Reason For Concern Over Liuzhou Liangmianzhen Co., Ltd.'s (SHSE:600249) Price

With a median price-to-sales (or "P/S") ratio of close to 3x in the Personal Products industry in China, you could be forgiven for feeling indifferent about Liuzhou Liangmianzhen Co., Ltd.'s (SHSE:600249) P/S ratio of 3.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Liuzhou Liangmianzhen

How Has Liuzhou Liangmianzhen Performed Recently?

The revenue growth achieved at Liuzhou Liangmianzhen over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

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 Liuzhou Liangmianzhen's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Liuzhou Liangmianzhen?

The only time you'd be comfortable seeing a P/S like Liuzhou Liangmianzhen's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 24% last year. Revenue has also lifted 9.4% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 24% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Liuzhou Liangmianzhen's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Bottom Line On Liuzhou Liangmianzhen's P/S

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Liuzhou Liangmianzhen's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Before you settle on your opinion, we've discovered 1 warning sign for Liuzhou Liangmianzhen that you should be aware of.

If you're unsure about the strength of Liuzhou Liangmianzhen'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.