Subdued Growth No Barrier To Zhejiang XinNong Chemical Co.,Ltd.'s (SZSE:002942) Price

There wouldn't be many who think Zhejiang XinNong Chemical Co.,Ltd.'s (SZSE:002942) price-to-sales (or "P/S") ratio of 2.1x is worth a mention when the median P/S for the Chemicals industry in China is similar at about 2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Zhejiang XinNong ChemicalLtd

How Has Zhejiang XinNong ChemicalLtd Performed Recently?

For instance, Zhejiang XinNong ChemicalLtd's receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability 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 Zhejiang XinNong ChemicalLtd's earnings, revenue and cash flow.

How Is Zhejiang XinNong ChemicalLtd's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 31% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 26% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 23% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Zhejiang XinNong ChemicalLtd is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Key Takeaway

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We find it unexpected that Zhejiang XinNong ChemicalLtd trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Zhejiang XinNong ChemicalLtd (1 is a bit concerning!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Zhejiang XinNong 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.