Slammed 26% Congyu Intelligent Agricultural Holdings Limited (HKG:875) Screens Well Here But There Might Be A Catch

Congyu Intelligent Agricultural Holdings Limited (HKG:875) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. Longer-term shareholders would now have taken a real hit with the stock declining 5.0% in the last year.

Even after such a large drop in price, there still wouldn't be many who think Congyu Intelligent Agricultural Holdings' price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Hong Kong's Food industry is similar at about 0.7x. 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 Congyu Intelligent Agricultural Holdings

What Does Congyu Intelligent Agricultural Holdings' Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Congyu Intelligent Agricultural Holdings has been doing very well. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Congyu Intelligent Agricultural Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Congyu Intelligent Agricultural Holdings would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 130% gain to the company's top line. The latest three year period has also seen an excellent 166% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that to the industry, which is only predicted to deliver 4.7% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it interesting that Congyu Intelligent Agricultural Holdings 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.

What Does Congyu Intelligent Agricultural Holdings' P/S Mean For Investors?

Congyu Intelligent Agricultural Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We didn't quite envision Congyu Intelligent Agricultural Holdings' P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

You should always think about risks. Case in point, we've spotted 3 warning signs for Congyu Intelligent Agricultural Holdings you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.