Revenues Not Telling The Story For Guoquan Food (Shanghai) Co., Ltd. (HKG:2517)

There wouldn't be many who think Guoquan Food (Shanghai) Co., Ltd.'s (HKG:2517) price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S for the Consumer Retailing industry in Hong Kong is similar at about 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Guoquan Food (Shanghai)

What Does Guoquan Food (Shanghai)'s Recent Performance Look Like?

There hasn't been much to differentiate Guoquan Food (Shanghai)'s and the industry's revenue growth lately. It seems that many are expecting the mediocre revenue performance to persist, which has held the P/S ratio back. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

Keen to find out how analysts think Guoquan Food (Shanghai)'s future stacks up against the industry? In that case, our free report is a great place to start.

How Is Guoquan Food (Shanghai)'s Revenue Growth Trending?

In order to justify its P/S ratio, Guoquan Food (Shanghai) would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 6.2% gain to the company's revenues. The latest three year period has also seen an excellent 63% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 6.1% as estimated by the lone analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 9.8%, which is noticeably more attractive.

In light of this, it's curious that Guoquan Food (Shanghai)'s P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

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.

Our look at the analysts forecasts of Guoquan Food (Shanghai)'s revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Guoquan Food (Shanghai) with six simple checks on some of these key factors.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.