Chaoda Modern Agriculture (Holdings) Limited (HKG:682) shares have had a horrible month, losing 29% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 21% share price drop.
Even after such a large drop in price, it's still not a stretch to say that Chaoda Modern Agriculture (Holdings)'s price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the Food industry in Hong Kong, where the median P/S ratio is around 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.
Check out our latest analysis for Chaoda Modern Agriculture (Holdings)
How Has Chaoda Modern Agriculture (Holdings) Performed Recently?
As an illustration, revenue has deteriorated at Chaoda Modern Agriculture (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 not, then existing shareholders may be a little nervous about the viability of the share price.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Chaoda Modern Agriculture (Holdings) will help you shine a light on its historical performance.What Are Revenue Growth Metrics Telling Us About The P/S?
In order to justify its P/S ratio, Chaoda Modern Agriculture (Holdings) 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 15%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.
Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 6.5% shows it's noticeably less attractive.
With this information, we find it interesting that Chaoda Modern Agriculture (Holdings) 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. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.
What Does Chaoda Modern Agriculture (Holdings)'s P/S Mean For Investors?
With its share price dropping off a cliff, the P/S for Chaoda Modern Agriculture (Holdings) looks to be in line with the rest of the Food industry. 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.
We've established that Chaoda Modern Agriculture (Holdings)'s average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.
Having said that, be aware Chaoda Modern Agriculture (Holdings) is showing 2 warning signs in our investment analysis, you should know about.
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.