The Ningbo Daye Garden Machinery Co.,Ltd. (SZSE:300879) 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 33% in that time.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Ningbo Daye Garden MachineryLtd's P/S ratio of 2x, since the median price-to-sales (or "P/S") ratio for the Consumer Durables industry in China is also close to 1.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Ningbo Daye Garden MachineryLtd

What Does Ningbo Daye Garden MachineryLtd's Recent Performance Look Like?

For instance, Ningbo Daye Garden MachineryLtd's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. 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?

The only time you'd be comfortable seeing a P/S like Ningbo Daye Garden MachineryLtd's is when the company's growth is tracking the industry closely.

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 45%. The last three years don't look nice either as the company has shrunk revenue by 16% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 12% shows it's an unpleasant look.

With this in mind, we find it worrying that Ningbo Daye Garden MachineryLtd'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. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What We Can Learn From Ningbo Daye Garden MachineryLtd's P/S?

Ningbo Daye Garden MachineryLtd's 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.

We find it unexpected that Ningbo Daye Garden MachineryLtd trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Before you settle on your opinion, we've discovered 2 warning signs for Ningbo Daye Garden MachineryLtd that you should be aware of.

If these risks are making you reconsider your opinion on Ningbo Daye Garden MachineryLtd, 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.