COFCO Biotechnology Co., Ltd.'s (SZSE:000930) Price Is Right But Growth Is Lacking

COFCO Biotechnology Co., Ltd.'s (SZSE:000930) price-to-sales (or "P/S") ratio of 0.6x might make it look like a buy right now compared to the Chemicals industry in China, where around half of the companies have P/S ratios above 1.9x and even P/S above 4x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for COFCO Biotechnology

What Does COFCO Biotechnology's P/S Mean For Shareholders?

For instance, COFCO Biotechnology's receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Although there are no analyst estimates available for COFCO Biotechnology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is COFCO Biotechnology's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 3.1% decrease to the company's top line. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 25% shows it's noticeably less attractive.

With this information, we can see why COFCO Biotechnology is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

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.

In line with expectations, COFCO Biotechnology maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 2 warning signs we've spotted with COFCO Biotechnology.

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.