China Yurun Food Group Limited (HKG:1068) May Have Run Too Fast Too Soon With Recent 27% Price Plummet

China Yurun Food Group Limited (HKG:1068) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 17% in that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about China Yurun Food Group's P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Food industry in Hong Kong is also close to 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.

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Check out our latest analysis for China Yurun Food Group

How Has China Yurun Food Group Performed Recently?

As an illustration, revenue has deteriorated at China Yurun Food Group over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. 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.

Do Revenue Forecasts Match The P/S Ratio?

China Yurun Food Group's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a frustrating 30% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 88% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 5.2% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that China Yurun Food Group's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On China Yurun Food Group's P/S

With its share price dropping off a cliff, the P/S for China Yurun Food Group 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 find it unexpected that China Yurun Food Group trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Having said that, be aware China Yurun Food Group is showing 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

If these risks are making you reconsider your opinion on China Yurun Food Group, 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.