The Tianjin MOTIMO Membrane Technology Co.,Ltd (SZSE:300334) share price has fared very poorly over the last month, falling by a substantial 30%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 16% in that time.

Even after such a large drop in price, when almost half of the companies in China's Commercial Services industry have price-to-sales ratios (or "P/S") below 2.7x, you may still consider Tianjin MOTIMO Membrane TechnologyLtd as a stock not worth researching with its 9x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

What Does Tianjin MOTIMO Membrane TechnologyLtd's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Tianjin MOTIMO Membrane TechnologyLtd over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

Is There Enough Revenue Growth Forecasted For Tianjin MOTIMO Membrane TechnologyLtd?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Tianjin MOTIMO Membrane TechnologyLtd's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 44%. The last three years don't look nice either as the company has shrunk revenue by 58% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 30% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we find it worrying that Tianjin MOTIMO Membrane TechnologyLtd's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Tianjin MOTIMO Membrane TechnologyLtd's P/S?

Tianjin MOTIMO Membrane TechnologyLtd's shares may have suffered, but its P/S remains high. 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've established that Tianjin MOTIMO Membrane TechnologyLtd currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Tianjin MOTIMO Membrane TechnologyLtd that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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