Qinqin Foodstuffs Group (Cayman) Company Limited's (HKG:1583) Shares May Have Run Too Fast Too Soon

There wouldn't be many who think Qinqin Foodstuffs Group (Cayman) Company Limited's (HKG:1583) price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S for the Food industry in Hong Kong is similar at about 0.5x. 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 Qinqin Foodstuffs Group (Cayman)

How Qinqin Foodstuffs Group (Cayman) Has Been Performing

For example, consider that Qinqin Foodstuffs Group (Cayman)'s financial performance has been poor lately as its revenue has been in decline. 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 you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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 Qinqin Foodstuffs Group (Cayman)'s earnings, revenue and cash flow.

How Is Qinqin Foodstuffs Group (Cayman)'s Revenue Growth Trending?

In order to justify its P/S ratio, Qinqin Foodstuffs Group (Cayman) would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.9%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 14% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly 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 7.0% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Qinqin Foodstuffs Group (Cayman) is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Qinqin Foodstuffs Group (Cayman)'s P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Qinqin Foodstuffs Group (Cayman)'s average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Having said that, be aware Qinqin Foodstuffs Group (Cayman) is showing 4 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.