To the annoyance of some shareholders Nanjing Pattern Technology Company Limited (HKG:1708) shares have fallen a whopping 26% over the past month, continuing the company’s terrible slide. For long-term shareholders, last month ended a year to forget, with the share price falling 88%.

Despite the sharp drop in price, it is not an exaggeration to say that Nanjing Sample Technology’s price-to-sales ratio (or “P/S”) of 0.6 seems pretty “average” at the moment, compared to the electronics industry in Hong Kong, where the median P/S ratio is around 0.4. However, it is not advisable to simply ignore the P/S without explanation, as investors may miss a special opportunity or a costly mistake.

Check out our latest analysis for Nanjing Sample Technology

What is Nanjing Sample Technology’s recent performance?

For example, Nanjing Sample Technology’s recent declining sales should give cause for pause. Perhaps investors believe that recent sales performance is enough to keep pace with the industry, preventing a decline in P/S. If you like the company, you’d at least hope that’s the case so you can potentially buy some shares while it’s not in demand.

Although there are no analyst estimates for Nanjing Sample Technology, take a look at these free Data-rich visualization to see how the company is performing in terms of profit, revenue and cash flow.

Do the sales forecasts match the P/S ratio?

Nanjing Sample Technology’s price-to-sales ratio is typical of a company that is expected to deliver only moderate growth and, importantly, industry-standard performance.

When we reviewed last year’s financials, we were disheartened to see that the company’s revenues fell by 3.7%. As a result, revenues from three years ago were also down by 48% overall. Accordingly, shareholders were sobered about medium-term revenue growth rates.

In contrast to the group, the rest of the industry is expected to grow by 23% next year, which puts the company’s recent medium-term sales decline into perspective.

With that in mind, it is somewhat concerning that Nanjing Sample Technology’s P/S is in line with most other companies. It seems that most investors are ignoring the recent weak growth rate and hoping for a turnaround in the company’s business prospects. There is a good chance that existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent negative growth rates.

The last word

With Nanjing Sample Technology’s share price plummeting, its price-to-sales ratio seems to be in line with the rest of the Electronics industry. It’s not useful to use the price-to-sales ratio alone to decide whether you should sell your shares, but it can be a handy guide to the company’s future prospects.

The fact that Nanjing Sample Technology is currently trading at a price-to-earnings ratio in line with the rest of the industry surprises us, as the company’s revenues have been declining recently over the medium term, despite the industry being geared towards growth. When we see a decline in revenues in the context of rising industry forecasts, it is reasonable to expect a possible decline in the share price on the horizon, driving down the modest price-to-earnings ratio. Unless the circumstances of the recent medium-term performance improve, it would not be wrong to expect a difficult time for the company’s shareholders.

Before you form an opinion, we found out 3 warning signs for Nanjing Sample Technology (1 is worrying!) that you should know about.

If you are looking for companies with solid earnings growth in the pastyou might want to see this free Collection of other companies with strong earnings growth and low P/E ratios.

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