To the annoyance of some shareholders, Vtron Group Co.,Ltd. (SZSE:002308) shares are down a considerable 43% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 66% loss during that time.

Although its price has dipped substantially, there still wouldn't be many who think Vtron GroupLtd's price-to-sales (or "P/S") ratio of 3.8x is worth a mention when the median P/S in China's Electronic industry is similar at about 3.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Vtron GroupLtd's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Vtron GroupLtd 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 not, then existing shareholders may be a little nervous about the viability of the share price.

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

There's an inherent assumption that a company should be matching the industry for P/S ratios like Vtron GroupLtd's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 29% decrease to the company's top line. As a result, revenue from three years ago have also fallen 40% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 61% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Vtron GroupLtd is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Key Takeaway

With its share price dropping off a cliff, the P/S for Vtron GroupLtd looks to be in line with the rest of the Electronic 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 Vtron GroupLtd 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. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 1 warning sign for Vtron GroupLtd that you should be aware of.

If you're unsure about the strength of Vtron GroupLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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