Jiangsu Lanfeng Bio-chemical Co.,Ltd (SZSE:002513) Looks Inexpensive After Falling 25% But Perhaps Not Attractive Enough

Jiangsu Lanfeng Bio-chemical Co.,Ltd (SZSE:002513) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 22% share price drop.

After such a large drop in price, Jiangsu Lanfeng Bio-chemicalLtd may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.8x, since almost half of all companies in the Chemicals industry in China have P/S ratios greater than 1.9x and even P/S higher than 4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Jiangsu Lanfeng Bio-chemicalLtd

What Does Jiangsu Lanfeng Bio-chemicalLtd's P/S Mean For Shareholders?

Jiangsu Lanfeng Bio-chemicalLtd has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. 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 out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Jiangsu Lanfeng Bio-chemicalLtd will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

Jiangsu Lanfeng Bio-chemicalLtd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered an exceptional 25% gain to the company's top line. As a result, it also grew revenue by 21% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 23% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Jiangsu Lanfeng Bio-chemicalLtd's P/S sits below the majority of other companies. 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

Jiangsu Lanfeng Bio-chemicalLtd's P/S has taken a dip along with its share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Jiangsu Lanfeng Bio-chemicalLtd revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Jiangsu Lanfeng Bio-chemicalLtd (1 is potentially serious!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Jiangsu Lanfeng Bio-chemicalLtd, 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.