Nanjing Panda Electronics Company Limited (SHSE:600775) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 12% share price drop.

Following the heavy fall in price, Nanjing Panda Electronics may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.9x, since almost half of all companies in the Communications industry in China have P/S ratios greater than 4.1x and even P/S higher than 7x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Has Nanjing Panda Electronics Performed Recently?

Nanjing Panda Electronics could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

Nanjing Panda Electronics' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 30%. This means it has also seen a slide in revenue over the longer-term as revenue is down 26% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 34% during the coming year according to the lone analyst following the company. With the industry predicted to deliver 51% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Nanjing Panda Electronics is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Nanjing Panda Electronics' P/S Mean For Investors?

Nanjing Panda Electronics' recently weak share price has pulled its P/S back below other Communications companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As expected, our analysis of Nanjing Panda Electronics' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Nanjing Panda Electronics has 1 warning sign we think 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.