The Jiangsu Nanfang Medical Co., Ltd. (SHSE:603880) share price has fared very poorly over the last month, falling by a substantial 28%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 43% in that time.

Since its price has dipped substantially, Jiangsu Nanfang Medical may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.7x, considering almost half of all companies in the Medical Equipment industry in China have P/S ratios greater than 4.5x and even P/S higher than 8x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

What Does Jiangsu Nanfang Medical's P/S Mean For Shareholders?

Revenue has risen firmly for Jiangsu Nanfang Medical recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

How Is Jiangsu Nanfang Medical's Revenue Growth Trending?

In order to justify its P/S ratio, Jiangsu Nanfang Medical would need to produce anemic growth that's substantially trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 21%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 41% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 25% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why Jiangsu Nanfang Medical's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From Jiangsu Nanfang Medical's P/S?

Jiangsu Nanfang Medical's P/S looks about as weak as its stock price lately. 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.

As we suspected, our examination of Jiangsu Nanfang Medical revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Before you settle on your opinion, we've discovered 2 warning signs for Jiangsu Nanfang Medical that you should be aware of.

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

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