To the annoyance of some shareholders, Safe & Green Holdings Corp. (NASDAQ:SGBX) shares are down a considerable 39% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 73% share price decline.

Since its price has dipped substantially, given about half the companies operating in the United States' Construction industry have price-to-sales ratios (or "P/S") above 0.9x, you may consider Safe & Green Holdings as an attractive investment with its 0.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Safe & Green Holdings' P/S Mean For Shareholders?

For instance, Safe & Green Holdings' receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

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

The only time you'd be truly comfortable seeing a P/S as low as Safe & Green Holdings' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 35% decrease to the company's top line. The latest three year period has seen an incredible overall rise in revenue, a stark contrast to the last 12 months. Accordingly, shareholders will be pleased, but also have some serious questions to ponder about the last 12 months.

When compared to the industry's one-year growth forecast of 9.3%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's peculiar that Safe & Green Holdings' P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Safe & Green Holdings' P/S?

The southerly movements of Safe & Green Holdings' shares means its P/S is now sitting at a pretty low level. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We're very surprised to see Safe & Green Holdings currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 4 warning signs for Safe & Green Holdings you should be aware of, and 3 of them don't sit too well with us.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.