Even With A 29% Surge, Cautious Investors Are Not Rewarding Origin Agritech Limited's (NASDAQ:SEED) Performance Completely

Those holding Origin Agritech Limited (NASDAQ:SEED) shares would be relieved that the share price has rebounded 29% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, despite the strong performance over the last month, the full year gain of 2.6% isn't as attractive.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Origin Agritech's P/S ratio of 1.2x, since the median price-to-sales (or "P/S") ratio for the Food industry in the United States is also close to 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Origin Agritech

What Does Origin Agritech's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Origin Agritech has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

How Is Origin Agritech's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Origin Agritech's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 65% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 2.7%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's curious that Origin Agritech's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Origin Agritech's P/S?

Origin Agritech appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

To our surprise, Origin Agritech revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

Before you take the next step, you should know about the 4 warning signs for Origin Agritech (1 is a bit concerning!) that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.