The Price Is Right For Quantum Foods Holdings Ltd (JSE:QFH) Even After Diving 31%

Unfortunately for some shareholders, the Quantum Foods Holdings Ltd (JSE:QFH) share price has dived 31% in the last thirty days, prolonging recent pain. Still, a bad month hasn't completely ruined the past year with the stock gaining 78%, which is great even in a bull market.

In spite of the heavy fall in price, it's still not a stretch to say that Quantum Foods Holdings' price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Food industry in South Africa, seeing as it matches the P/S ratio of the wider industry. 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.

Check out our latest analysis for Quantum Foods Holdings

How Quantum Foods Holdings Has Been Performing

As an illustration, revenue has deteriorated at Quantum Foods Holdings over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. 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 Quantum Foods Holdings' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Quantum Foods Holdings?

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

Retrospectively, the last year delivered a frustrating 2.0% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 23% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

It's interesting to note that the rest of the industry is similarly expected to grow by 5.5% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this in consideration, it's clear to see why Quantum Foods Holdings' P/S matches up closely to its industry peers. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Final Word

Following Quantum Foods Holdings' share price tumble, its P/S is just clinging on to the industry median P/S. 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.

As we've seen, Quantum Foods Holdings' three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. With previous revenue trends that keep up with the current industry outlook, it's hard to justify the company's P/S ratio deviating much from it's current point. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

You need to take note of risks, for example - Quantum Foods Holdings has 4 warning signs (and 2 which are concerning) we think you should know about.

If you're unsure about the strength of Quantum Foods Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com