Shandong Fengxiang Co., Ltd's (HKG:9977) Shares Not Telling The Full Story

There wouldn't be many who think Shandong Fengxiang Co., Ltd's (HKG:9977) price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S for the Food industry in Hong Kong is similar at about 0.5x. 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 Shandong Fengxiang

What Does Shandong Fengxiang's Recent Performance Look Like?

The recent revenue growth at Shandong Fengxiang would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. Those who are bullish on Shandong Fengxiang will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

Do Revenue Forecasts Match The P/S Ratio?

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

Retrospectively, the last year delivered a decent 5.4% gain to the company's revenues. Pleasingly, revenue has also lifted 35% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 6.2% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Shandong Fengxiang is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On Shandong Fengxiang's P/S

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 Shandong Fengxiang currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you take the next step, you should know about the 3 warning signs for Shandong Fengxiang (1 can't be ignored!) that we have uncovered.

If these risks are making you reconsider your opinion on Shandong Fengxiang, 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.