The CCT Fortis Holdings Limited (HKG:138) share price has fared very poorly over the last month, falling by a substantial 33%. Longer-term shareholders would now have taken a real hit with the stock declining 2.5% in the last year.

Even after such a large drop in price, it's still not a stretch to say that CCT Fortis Holdings' price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Industrials industry in Hong Kong, seeing as it matches the P/S ratio of the wider industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does CCT Fortis Holdings' Recent Performance Look Like?

For example, consider that CCT Fortis Holdings' financial performance has been poor lately as its revenue has been in decline. 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.

Do Revenue Forecasts Match The P/S Ratio?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 5.8%. Even so, admirably revenue has lifted 51% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 8.3% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that CCT Fortis Holdings is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

What Does CCT Fortis Holdings' P/S Mean For Investors?

CCT Fortis Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

To our surprise, CCT Fortis Holdings revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with CCT Fortis Holdings (at least 2 which shouldn't be ignored), and understanding these should be part of your investment process.

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.