Suzhou Harmontronics Automation Technology Co., Ltd (SHSE:688022) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 64% share price decline.

In spite of the heavy fall in price, Suzhou Harmontronics Automation Technology may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.7x, since almost half of all companies in the Machinery industry in China have P/S ratios greater than 2.7x and even P/S higher than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Suzhou Harmontronics Automation Technology

How Suzhou Harmontronics Automation Technology Has Been Performing

Recent times have been advantageous for Suzhou Harmontronics Automation Technology as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Suzhou Harmontronics Automation Technology's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 70%. Pleasingly, revenue has also lifted 215% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 65% as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 28% growth forecast for the broader industry.

In light of this, it's peculiar that Suzhou Harmontronics Automation Technology's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Suzhou Harmontronics Automation Technology's P/S?

The southerly movements of Suzhou Harmontronics Automation Technology's shares means its P/S is now sitting at a pretty low level. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

To us, it seems Suzhou Harmontronics Automation Technology currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 3 warning signs for Suzhou Harmontronics Automation Technology (1 is potentially serious!) that you need to take into consideration.

If you're unsure about the strength of Suzhou Harmontronics Automation Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.