The VT Industrial Technology Co.,Ltd (SZSE:300707) share price has softened a substantial 31% over the previous 30 days, handing back much of the gains the stock has made lately. Longer-term, the stock has been solid despite a difficult 30 days, gaining 17% in the last year.

Although its price has dipped substantially, it's still not a stretch to say that VT Industrial TechnologyLtd's price-to-sales (or "P/S") ratio of 3.3x right now seems quite "middle-of-the-road" compared to the Auto Components industry in China, where the median P/S ratio is around 2.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for VT Industrial TechnologyLtd

How VT Industrial TechnologyLtd Has Been Performing

As an illustration, revenue has deteriorated at VT Industrial TechnologyLtd 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 VT Industrial TechnologyLtd's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 4.5% decrease to the company's top line. Even so, admirably revenue has lifted 55% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 27% shows it's noticeably less attractive.

In light of this, it's curious that VT Industrial TechnologyLtd's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On VT Industrial TechnologyLtd's P/S

With its share price dropping off a cliff, the P/S for VT Industrial TechnologyLtd looks to be in line with the rest of the Auto Components industry. 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.

Our examination of VT Industrial TechnologyLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

And what about other risks? Every company has them, and we've spotted 3 warning signs for VT Industrial TechnologyLtd (of which 2 are concerning!) you should know about.

If these risks are making you reconsider your opinion on VT Industrial TechnologyLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.